Why has Jumia been in the news?
In April 2019, Jumia was listed on the New York Stock Exchange, becoming the first African start-up to IPO on a major international exchange. Initially valued at $1.4 billion, by the end of the first day’s trading the company’s value had soared to over $3 billion. Within a few weeks, however, the company’s stock suffered a significant decline, weighed down by allegations of fraud and concealed losses. Just before the anniversary of its IPO, founding investor, Rocket Internet, sold their 11% stake for around $4 per share.
Since the initial turbulence following its IPO, Jumia has refocused on core efficiency and profitability in order to develop a more sustainable business for the long-term. It has exited 14 countries and shifted its product catalogue to a higher turnover and margin products. With the Covid-19 crisis rapidly accelerating retail’s shift to digital, globally, and with a renewed focus on profitability, there is a compelling case to review Jumia in a new light. Its share price has certainly reflected changing perceptions of the business, rising to $28 per share at the time of writing (market cap $2.3 billion). The nascent stage of e-commerce in Africa means there are still many opportunities for Jumia to grow, both in terms of its core marketplace and also its payments and logistics as part of a holistic platform.
What opportunity set does Jumia target?
With a population of 1.3 billion, a growing middle class, high GDP growth and high internet and smartphone (77%) penetration, the opportunity for e-commerce in Africa is large. Despite this, there remain fundamental challenges, including poor infrastructure, a lack of locally manufactured goods, and economic instability, that e-commerce players must overcome in order to succeed. These challenges help to explain why the e-commerce market is still so underdeveloped, with penetration less than 1%. However, the development of a core digital infrastructure across the continent has created opportunities for e-commerce players to solve these challenges and meet the needs of consumers, much as Jumia has done.
Unlike developed markets where fierce e-commerce competition relies on existing quality infrastructure, in frontier markets such as Africa the responsibility for creating the necessary infrastructure falls on the e-commerce challenger. Once developed, this infrastructure can then become a key point of competitive advantage for the incumbent e-commerce player. To be successful, Jumia had to solve three fundamental problems:
- Logistics: International delivery companies in Nigeria lacked the structure, interest, and capital to scale to meet Jumia’s growing requirements. Other issues included severely high traffic volume, theft, and poor-quality roads. As a result, Jumia built its own logistics system, Jumia Logistics, investing in a fleet of delivery vehicles and rented distribution hubs. Customers were able to select home delivery or self-pickup at hundreds of locations. Jumia invested in tech to optimise, track, and notify customers and this data was then used to determine vendor acquisition, drive sales, and persuade international brands to partner with Jumia as a point of entry to Africa.
- Payments: Cash-on-delivery (COD) constituted 85% of Jumia payments in 2015. Given the lack of internet banking, low credit card penetration, and online fraud, most customers preferred to pay cash after receiving and evaluating the purchase. Despite being necessary to bolster sales, cash on delivery still poses a challenge – customers not showing on delivery, or refusing to pay. Jumia has developed its own payments app, JumiaPay, to support its customers to make digital payments. Not only does this reduce the cost and effort of COD, but it also serves as a platform for Jumia to launch new products and services for its users, leveraging the data it gathers through the marketplace.
- Customer service: Customer satisfaction initially fell when Jumia switched to the marketplace model in 2016, mainly as a result of vendors maintaining inadequate stock levels. Jumia responded by making customer satisfaction the main business KPI and investing significant sums in developing a ‘first-class’ shopping experience that is key to customer retention. Jumia also established J-Force: a series of agents who travel door-to-door to help introduce people to the website. High ‘out of stock’ vendors were penalised or taken off the platform.