Jumia was all out to becoming a leading e-commerce player on the continent when it initially launched in 2012. With a goal to enable a third party e-commerce, Jumia could be on its way to becoming the “amazon of Africa”.
It set about that objective like typical e-commerce platforms do: acquiring vast inventory, building warehouses, and aiming to drive online sales based on the promise of ease and convenience.
Indeed, one of the company’s first steps was to hire account managers in charge of growing its inventory base across a diverse range of categories, from mobile phones and electronics to fashion, beauty and childcare. If customers wanted to buy it, Jumia—often referred to as the Amazon of Africa—wanted to be able to sell it. It was similar to the way Amazon itself started first with books and CDs and then eventually an Amazon of nearly everything.
But a billion-dollar IPO and nearly a decade later, Jumia is now chasing slightly different ambitions. Rather than building a business based on directly engaging in consumer e-commerce by retailing a vast inventory, Jumia is now mainly focused on enabling e-commerce for other players in Africa instead.
The first marker of Jumia’s change in business model came in 2016 when its in-house inventory was whittled down and largely replaced with a vendor marketplace. Having invested in marketing and building its brand, Jumia began to essentially lease digital real estate by allowing independent vendors sell items on its website while earning commission from their sales.
The tweak saw Jumia significantly reduce the underlying risk of holding inventory while democratizing its supply chain. The proposition also proved attractive to vendors who saw merit in tapping into Jumia’s established e-commerce framework, from its online marketplace to its delivery and warehousing network.
Necessity driving invention
The changes to Jumia’s business model have been borne out of painful lessons from its experiences as an e-commerce front-runner on the continent. One of its biggest early-day realizations was a trust deficit among customers which meant that selling the e-commerce dream was going to be tougher than expected. With customers’ buying habits favoring offline retail over e-commerce and a preference for cash over digital payments, the company’s first task, alongside its competitors, was to engineer a shift in user behavior.
It attempted to do this by building workarounds to the classic e-commerce model. For instance, a preference for cash payments saw Jumia adopt a “pay on delivery” model which allowed customers receive and examine delivered items before paying. But that ran into its own problems with unsavory characters taking advantage to arrange robberies of delivery agents, including one tragedy which grabbed national headlines.
In cases where customers chose to pay online, the early-day unreliability of digital payments in Nigeria meant online transactions were as likely to fail as they were to succeed. And when all these hurdles were passed, there was also the difficulty of running efficient deliveries in congested African cities with limited addressing systems.
The answers lay in building in-house solutions from the ground-up. To resolve customers’ online payment difficulties, Jumia built and launched JumiaPay, an exclusive payments service for its marketplace. In markets with little credit card penetration (outside South Africa) and even low debit card penetration, enabling flexible digital payments is crucial for any e-commerce operator to succeed. It is also the reason fintech startups have been vibrant part of the African tech ecosystem to help solve the multibillion-dollar opportunity in enabling financial inclusion.
As a marker of the JumiaPay’s growing adoption since being launched, 34.1% of Jumia orders in the third quarter of 2020 were paid for using the in-house payments service. And, to get around logistics difficulties, Jumia also set up 1,300 drop-off and pick-up stations to ease last-mile delivery problems, a network of over 300 courier partners as well as proprietary technology for tracking optimal delivery routes and inventory.
Jumia Third party E-commerce
After a decade of resolving operational challenges that plague e-commerce across African markets and building out infrastructure, Jumia is now shifting its focus to outsourcing these solutions. After being exclusive to its marketplace vendors and users, JumiaPay and Jumia Logistics are set to be opened up to third-party e-commerce players.
While JumiaPay will likely jostle for market share with an ever-growing pool of competing fintech players across the continent, the spin-off of its logistics arm could see it quickly become a market leader in various countries given how much of a problem logistics and last-mile delivery represent to many other small and large e-commerce players.
With operations across 11 African countries, there are no other Africa-focused e-commerce players that can boast of Jumia’s pan-African operational knowledge on the continent, making it an attractive option for smaller players looking to plug into its network
Naturally, Jumia’s move is far from being altruistic.
A long-running history of huge losses means the company’s leadership is increasingly focused on looking beyond e-commerce as a core offering. On the company’s last earnings call, Antoine Maillet-Mezeray, Jumia’s chief financial officer said the company will “further diversify” its revenue streams by maximizing “untapped” monetization avenues. “Payments and logistics are historically the core infrastructure supporting the growth of the marketplace. However, these assets have tremendous growth potential in their own right beyond the scope on an e-commerce marketplace,” Maillet-Mezeray said.
And so, Jumia’s decade-long evolution moves fully into its next phase. Originally positioned as a retail-focused, e-commerce behemoth, similar to Amazon’s original positioning, Jumia has morphed into a B2B (business to business) facilitator of third-party e-commerce through its marketplace, payments service and logistics network.
But in many ways the “Amazon of Africa” moniker is still relevant for Jumia’s journey. Amazon famously ran up losses for its first 17 quarters as a public company and even after it turned profitable only provided investors with a modest return for many years. But today its most profitable arm is its B2B Amazon Web Services business which hosts many huge clients including Netflix, LinkedIn and Twitch.
As Jumia losses begin to narrow, it’s a path the company’s leadership seem set on. With the business continuing to focus on vendor commissions and fulfillment revenues which now account for 70% of its marketplace income, first party revenue (i.e. revenue from merchandise bought and sold by Jumia) dropped by 53% year on year in the third quarter of 2020.
The sharp decline was not accidental: “This was in line with our strategy to undertake fewer sales on a first party basis as we focus on running an asset light marketplace model where third-party sellers offer consumers an expanding range of products and services,” its earnings report read.
This article is sourced from:https://qz.com