JUMIA’S CRASH

A thousand wounds and now, a bullet in the head. The metaphor is violent. Yet, Jumia’s fate is throwing shade at your favorite horror movie.

Let’s recap in a few points:

February 2016: Jumia (then known as Africa Internet Group) reaches unicorn status.

April 2019: Jumia makes history by being the first Africa-centric company to get listed on the NYSE. Amazon of Africa’ soars more than 75% on its first day of trading and peaks at $49.77 per share within a few days.

May 2019: Citron Research calls out (PDF) Jumia affirming, “In 18 years of publishing, Citron has never seen such an obvious fraud as Jumia.” The allegation was denied by Sasha Poingnonnec, co-CEO of Jumia who accused back Citron of “taking selective bias and unverified claims to try to damage Jumia” and described the attack as “market rumors rather than facts.” But that did not its stock from tumbling.

Fast forwarding a series of tragedies

April 2020 – five days ago: Jumia’s mother, Rocket Internet, cuts the umbilical cord by selling its stake in the company.

I say it out loud: Jumia is heading towards bankruptcy.

In this article, I will trace back the emergence of the ‘African giant’, synthesize relevant analyses, and reveal the alternative models for ecommerce on the continent.

THE STORY OF JUMIA’S CRASH

Rocket Internet, the German Investment company had 11 percent stake in Jumia as of November 8. On the 2nd of April 2020, they announced that they have sold their holding, refusing to be more precise on the terms of the deal. However, it is quite easy to read between the lines knowing the unfortunate sequence of events that Jumia went through during these last years. Undoubtedly, the main pain point remains its unprofitability.

In March 2016, Jumia (then known as Africa Internet Group) raised $326 million from Goldman Sachs and Axa at a valuation of $1 billion. Its revenues were reported to exceed $180 million in 2019 which represents a 22.8% of increase from the previous year. This increase in revenues is explained by the rise of customer orders by 49% year on year, high customer conversion rates with a customer base of 6.1 million as of the third quarter as well as diversification of their offerings to better serve the local markets they operate in.

 

In the fourth quarter, operating losses grew by 15% reaching $66.5 million year-on-year while full-year operating losses increased by 34% reaching $250 million. The ecommerce startup attributes this massive burn rate to high fulfillment expenses: warehousing, picking, packing and shipping the product. Along with a dramatically declining runway, a little over $250 million of cash and cash equivalents at the end of the full year 2019, Jumia will probably not make it to 2021. Will institutional investors, during such a hostile post-Covid-19 economic environment, save the company’s imminent death with a cash injection? I genuinely doubt it.

Discouraging financial reports resulting in stock price collapse

Jumia’s urge to attain profitability as well as the pressure coming from the investors motivated market exits in three countries in the fourth quarter of 2019; Ga

bon, Cameroon, then Tanzania. Jumia left fragmented markets that are hostile to ecommerce with underdeveloped digital payment services and a poor logistical and delivery infrastructure that led to high managing operations costs. In addition, the company downsized its operations in Nigeria, its biggest market.

At this point, it has been obvious that the company’s management is turning its back to ‘growth at all cost’ and trying to make sense of its unit economics.

As a matter of fact, the ecommerce company underwent restructuring at all levels. However, expenses were still increasing faster than operating cash was coming in. Consequently, Jumia was still reporting million-dollar losses.

2) THE ROLLER COASTER OF ECOMMERCE ANALYSIS

Between 2018 to 2020, Africa-centric experts’ opinions went from “Africa’s fertile land for ecommerce” to “ecommerce has no place in Africa”. Early on, the African startup advocates were enthusiastic to see the emergence of the first unicorn on the continent. They have flooded the internet with opinion articles about Africa being the future of ecommerce.

Once the hype around the NYSE introduction faded away, the internet has witnessed a series of in-depth analysis which resulted in a more mature approach to analyzing the ecommerce phenomenon on the continent.

Several experts have pointed out that Africa is full of impediments for ecommerce activities. A considerable number of alarming factors prevent the rise of traditional ecommerce activities such as internet accessibility, low literacy rates, payment on arrival, nonexistent home addresses and lack of trust.

Companies applying an international, mainstream ecommerce business model such as Kalahari, Konga and several Naspers’ ecommerce properties had a hard time reaching profitability and hence maintaining operations.

Why would Jumia meet a different fate if it is doing the same as its competitors on a much faster and larger scale? There is no fatality here, rather events and facts that have proven that ecommerce in Africa is a quixotic exercise.

The few investors who still have faith in Jumia believe that the company’s last chance to avoid bankruptcy is to double down on the fintech infrastructure that they have been establishing.

In early 2019, Jumia Nigeria CEO, Juliet Anammah announced that the two promising services JumiaPay and Jumia Logistics will be playing solo. Later on, Jumia co-CEOs, Jeremy Hodara and Sacha Poignonnec shared their optimism toward the success of JumiaPay. These latter events confirmed the analysts’ predictions: Jumia is using its platform to boost JumiaPay’s adoption, similar to what eBay did with Paypal and AliExpress with AliPay.

However, the current situation is undeniably different for Jumia and cannot be compared to its American and Asian equivalents, mainly due to Jumia’s financial predicament. Turning JumiaPay into a profitable business unit might take time that Jumia can’t afford.

 

THE DIFFERENT APPROACH TO ECOMMERCE

While the king [Jumia] is losing its throne, new e-commerce models are blossoming across the continent.

The biggest misstep made by entrepreneurs and venture capitalists was to jump on a booming industry [ecommerce] and replicate its business model on the world’s poorest continent. Doubtlessly, the African business environment is fascinatingly unique, its mass consumer market is largely understudied which makes it unpredictable and its infrastructure is scarce and highly fragmented.

All of the above makes Africa the most hostile place for establishing a large scale sustainable business. On the bright side, the harsh reality gives rise to the world’s most resilient and relentless entrepreneurs.

How are Africans redefining the ‘Africanized’ e-commerce model?

My favorite example is Copia, a mobile commerce platform that offers ecommerce services to middle and low-income Kenyans living in the rural areas. How does Copia overcome traditional e-commerce barriers? By using a central point of delivery which is the retail outlet, Copia overcomes the postal address issue related to deliveries. What is particular about their business model is the introduction of agents who place orders on behalf of the customers.

Essentially, customers visit a close-by small retail outlet, they select items from the catalog and pay, the agent sends the order to Copia. Two to four days later, the customer visits the agent and picks up the ordered goods. Also, by doing business through agents, they solve a major trust issue. Copia CEO, Tim Steel, emphasizes on the critical role of the kiosks in the success of the user experience, highlighting that “agents are trusted members of the community and through them, we build a direct relationship with the consumer”.

On another note, it is also important to shed light on a whole wave of African startups who are offering an infrastructure layer on which new ecommerce endeavors can thrive.

Kobo360 and Lori Systems are consolidating the long-haul freight transportation sector. Sendy, Paps and Kwik are improving last-mile delivery services. Paystack and Flutterwave are covering frictionless cross-border payments. VerifyMe, YouVerify and Smile Identity are enabling and automatizing address verification, ID verification and eKYC processes.

I really hope that I am proven wrong on this as Jumia’s bankruptcy could freeze the global investors’ appetite for the continent, at least temporarily. The good news is: regardless of Jumia, ecommerce is locally growing deeper roots and will result in the blossoming of Africanized models in the coming years.

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