In the heady days after Jumia became the first African startup valued at $1 billion following its listing on the New York Stock Exchange in April 2019, the media was quick to laud the e-commerce company’s achievements. It was the second time Jumia, an online store that sells everything from clothes to electronics to household items, reached a $1 billion valuation; three years earlier, an investment from Goldman Sachs had sent the company over that threshold too.
But Jumia has had a difficult time since its executives rang the bell on Wall Street, and its performance during the coronavirus pandemic, when stay-at-home orders normalized online shopping, has raised questions within the technology community about the business’s long-term viability.
Post–public listing blues
Jumia has lost more than $1 billion since it launched in 2012. Now that it has been listed publicly for more than a year, reducing losses has become its primary concern as it eyes profitability in 2022. Lagos-based investment analyst Seun Oyajumo told Rest of World this must be the focus because “public markets are not as accepting of loss-making as private investors.”
But some, like business-development expert Wiza Jalakasi, say there’s more to consider when looking at Jumia’s losses.
“Jumia is essentially paying for consumer behavior change for the first time on the continent,” he told Rest of World from Nairobi. Shoppers across Africa are accustomed to purchasing goods from brick-and-mortar shops and markets. Jumia is encouraging them to shift that spending to online — no small task.
“And they’re doing it at scale, which nobody has ever done before,” Jalakasi added. “So it was never going to be cheap, and somebody was going to have to pay this price anyway to get people into the habit of buying things online.”
Nonetheless, the e-commerce company has employed aggressive cost-cutting measures to reduce its loss rates. In November 2019, Jumia closed its operations in Cameroon and Tanzania. The following month, it retreated from Rwanda, reducing its market presence from 14 countries to 11, and sold Jumia Travel, its vertical for booking hotels and flights, to South African website Travelstart.
Some people saw those cutbacks coming. In November 2018, Rebecca Enonchong, a Cameroonian tech industry veteran, argued that some countries were only included on Jumia’s roster as “proof of geographical scale” in the company’s bid for a public listing.
Enonchong, who also serves as board chair at AfriLabs Foundation, a community of tech hubs in Africa, predicted at the time that Rocket Internet, the Berlin-based startup investor that bankrolled most of Jumia’s early years, wouldn’t fund the e-commerce platform in the long term. “Rocket Internet isn’t good at that,” she said, referring to the necessarily long period of time it can take e-commerce to take hold on the continent.
Sure enough, in April, Rocket Internet announced it had sold off its 11% stake in Jumia. The sale was consistent with the German company’s strategy of investing, floating on the stock exchange, then selling off its stake. South African telecoms giant MTN, Jumia’s largest shareholder, may now be exploring a sale of all or some of its stake too.
Jumia has also had its fair share of controversies. In March 2019, the company uncovered fraudulent behavior by some of its marketers in a network of independent sales consultants called JForce, who earn commissions based on the number of Jumia-supplied items they sell. Some of its members in Nigeria were found to have placed orders and subsequently canceled them, falsely boosting Jumia’s gross merchandise value (the total sales on its platform) to the tune of about $17.5 million between the last quarter of 2018 and the second quarter of 2019.
Jumia has always maintained it was unaware of the JForce fraud and in a statement said it was “implementing measures designed to prevent similar conduct in the future and, more broadly … taking steps to strengthen our internal controls and corporate governance.”
Sim Shagaya, the former CEO of Konga, a one-time Jumia rival that was acquired in distress by a computer manufacturer, said it was impossible for fraud on that scale to have happened “without the complicity or, at the minimum, the tacit consent of management.”
Then there were the multiple class-action lawsuits filed against Jumia in the New York area soon after its listing on the NYSE. One of the suits alleged Jumia had made “materially false and misleading statements to investors” and that the company had overstated its active customers and merchants, among other claims. In its 2020 second-quarter results, released in mid-August, Jumia said it had reached an agreement to settle the cases for $5 million — without admitting to any liability or wrongdoing.
Pandemic wins and losses
The coronavirus-enforced lockdowns around the world led to a surge in e-commerce shopping across Africa. This should be Jumia’s time to shine — and, in some ways, it has. Across the company’s 11 markets, active users have grown to 6.8 million, a 40% year-over-year increase from the company’s 2019 second-quarter results. Orders also have grown by 8% to 6.8 million during the same period. But the larger customer base and increase in orders haven’t translated into more earnings; in fact, Jumia’s gross merchandise value decreased by 13%, to $270 million, which means it has actually made less money so far during the pandemic than it did during the same period last year.
According to Jumia, the gap between sales and profits reflects customers’ buying more inexpensive items, like household products, and having a “reduced appetite for higher-ticket size, discretionary purchases.” The company also said its food-delivery service, Jumia Food, suffered from the restaurant closures that began in mid-March and lasted until late May or early June in its big markets, such as Lagos, Nairobi, and Casablanca.
But much of the company’s Covid-related losses were offset by cost-cutting efforts prior to the pandemic. In its second-quarter results, Jumia reduced its losses by 44% year over year, to $44.5 million, its biggest drop in losses in six quarters. Gross profit after fulfillment reached a record $7 million, meaning Jumia made a profit on getting orders to its customers — a considerable improvement on last year, when they lost almost $830,000.
That accomplishment was no easy feat; Jumia implemented a number of measures, including “proximity warehouses” dedicated to essential products, which brought reduced delivery times. While losing money trying to fulfill a customer’s order is considered to be an unforgivable mistake for an e-commerce company, its logistical struggles are proof that Jumia was — and still is — facing headwinds that are alien to its Western counterparts.
Jumia, and e-commerce groups like it, have to contend with the fact that as many as 95 million potential customers on the continent do not have bank accounts. To meet their needs, Jumia allows its users to pay for their orders in cash upon delivery. This requires the customer to be home at the time of delivery, which doesn’t always happen. After three unsuccessful attempts, Jumia will categorize the order as a failed delivery and return the item to the vendor, footing the bill for the shipping.
In its SEC filing, Jumia noted that it also faced challenges with “excessive returns, late collections, unrecoverable receivables, and voucher abuse.” And even when transporting orders purchased goods from the warehouse to the consumer’s doorstep, pothole-ridden roads and difficult-to-find addresses create additional barriers to efficiency, especially in remote areas of Nigeria, Uganda, and other rural regions.
Oyajumo believes that Jumia’s turning a profit in spite of the challenges of fulfilling orders shows the company is moving in the right direction.
While payment options continue to be an obstacle, Jumia Pay, the company’s payment system, saw an increase in users. During its second quarter this year, its total payment value reached an all-time high of $63 million, accounting for 35.6% of all orders placed on Jumia. But Oyajumo says there are still questions about its long-term value, since consumers can use it only to pay for Jumia’s services.
The road ahead
Because it is the poster child for e-commerce in Africa, there is a tendency to extrapolate from Jumia’s struggles to the sector overall. And with good reason: all e-commerce companies on the continent must deal with the same structural challenges Jumia does, and often with fewer financial resources at their disposal.
Yet even with the structural difficulties, potholes and all, there is still plenty of room for e-commerce to grow in Africa, where less than 1% of retail commerce is online. A report by venture capital consultancy Baobab Insights shows that African e-commerce startups are attracting funding, particularly at the seed stage. But the reality in which these companies operate is still far from ideal, according to Oyajumo. “Innovations build on infrastructure. It’s going to be very difficult for your innovation to succeed if that underlying framework doesn’t exist. In Nigeria, they’re practically building from scratch,” he said.
In many African countries, consumers are embracing small e-commerce businesses that use social media as their marketplace. Vendors sell everything from food and gadgets to perfumes on platforms like Instagram and Twitter. Oyajumo believes consumers are warming to that kind of e-commerce because they “can put a face to some of these businesses.” Wiza Jalakasi, for one, said he feels “very optimistic about the future of e-commerce,” citing the increase in mobile banking as a good indicator of what’s to come. “E-commerce is the next logical step that makes those things more useful.”