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KonkNaija Media | May 2, 2016

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Nigeria’s ecommerce at crossroads as Jumia sacks 50% of workers – by Paul Adepoju

Nigeria’s ecommerce at crossroads as Jumia sacks 50% of workers – by Paul Adepoju

| On 20, Apr 2016


There are strong indications that Nigeria’s ecommerce powerhouse, Africa Internet Group (AIG)-owned Jumia will sack 50% of its workers this week. This is coming few months after it sacked about 30% of its workforce.

The latest sack is seen as a move by the company towards drastically reducing its expenses and striving towards profitability.

Even though Jumia is not the only tech company that has sacked workers in recent times, the fact that the company is firing most of its workers few months after it sacked 30% of its staff has become a major concern in Nigeria’s ecommerce space. This in effect has created an uneasy mental state, made working in Jumia tiring and less motivating as employees go to work stressed out over the anxiety of getting fired at any time

In an exclusive interview with TechCity, several former Jumia workers confirmed the development and they said the company is spending a lot on salaries, overhead and marketing.

“But from what I heard, they have reduced marketing spend,” an ex-Jumian said.

However, another ex-Jumian said the development at Jumia wasn’t just as a result of the high cost being incurred, she said it was due to the decision of the company to restructure its operations prompting it to cut down its workforce. However, she said the company failed to invest in its employees.

“They didn’t invest in their employees ahead of time. Some of their employees were those that structured Konga and other ecommerce platforms.”

Warehouse closure + Jumia marketplace = merger with Kaymu?

There are also reports that Jumia is emptying its warehouse with the long term plan to focus entirely on running the platform as a marketplace. This is similar to what DealDey did after it closed it outlets and outsourced its logistics services. But if this eventually happens to Jumia, the company would be doing what a similar Africa Internet Group (AIG) company, Kaymu, is doing. Many stakeholders also believe that this will eventually lead to the merger of Jumia and Kaymu.

“I foresee them merging Jumia and Kaymu, that has always been the plan anyway,” a Jumia insider told TechCity.

Does this mean ecommerce is not yet viable in Nigeria?

With this familiar trend of ecommerce companies firing workers in large numbers as a way to save cost, industry watchers and investors may begin to wonder whether the sector is not as flourishing as the media has pitched it to be, but a closer look at the developments in the various ecommerce companies would show that ecommerce is indeed viable in the country but at a high cost – usually due to Nigeria’s peculiar infrastructural and logistic challenges.

When the major ecommerce companies launched about five years ago, they were just testing the Nigerian waters, nobody really knew what was working.

“Ecommerce only work when you have large volume – when you have a lot of customers. Out of all these people, Jumia still has the highest number of sales. Konga is not making money, and it has the worst model of them all. Konga use to spend money without tracking anything. Konga has outsourced their logistics now. They want to expand across Africa like AIG but I don’t see that working out for them,” an anonymous respondent said.

It has emerged that outsourcing logistics services is the best approach of ecommerce companies interested in cutting costs. The rule is simple – if you don’t outsource, you will continue investing money in logistics infrastructure – because logistics is where most of the money is spent.

Tunde Kehinde’s

With the future of ecommerce in Nigeria gradually becoming one that is entirely built on outsourcing, industry watchers are beginning to think Tunde Kehinde, one of the original founders of Jumia Nigeria made the right decision when he decided to launch, a logistics outfit following his exit from Jumia. But those that know about the company’s operations said that it appears things are not working very smoothly at the company.

“ACE is not doing well. All the ecommerce companies that ACE partnered with have dropped out because they had no structure that could manage ecommerce. I think the only partner they have now is Chicken Republic – helping them manage their platform and helping them deliver. If they had a better strategy they would succeed but everyone I know has dropped them, even,” an insider said.

Yet, Nigeria needs ACE to work.

To reduce cost and to have highly efficient logistics services would require looking outside Nigeria. In UK, the ecommerce companies use the mail, in USA, they also use the mail for deliveries. For Amazon and the rest, most of them partner FedEx and DHL for deliveries. In Nigeria, NIPOST would have been ideal but its service efficiency has depreciated over the years leaving the delivery and other logistics services in the hands of emerging logistics companies. The major problem in Nigeria is that logistics is very expensive and everyone sees it as opportunity to make so much money.

“An entrepreneur said if you order something from her and you use any of the delivery services, the least they (the delivery company) will ask for is NGN1,000. Jumia does it for NGN500 in Lagos. If we have more delivery services that are affordable, the burden of logistics would not be there and it would be easier for ecommerce traders to leverage on them,” she said.

Jumia’s action – bad but needed

Those that spoke to TechCity said Jumia was growing very fast, they hired so many people because their business model required them to do so.

The respondent said: “But if you are growing at that rate and you are scaling up so much, your revenue will not be able to meet up because you will still have to charge competitive prices that people will be able to afford, and you will still have to pay salaries”.

“In a typical tech startup, people can push themselves and deliver results. It was like that at Jumia in the beginning. But when you consider yourself as a big company, you’ll begin to hire people that you are not getting the right output from them.”

With the focus now on outsourcing logistics services, smaller entrepreneurs running ecommerce platforms now have a fighting chance since they no longer need millions of dollars to perfect their logistics plans. It’s now about central logistics services and the difference will only be who can spend more on marketing – or who can offer more superior services.