Do you want to know why the eCommerce model is not working in Nigeria? If YES, here are 17 reasons eCommerce businesses thrive in USA & UK but fail in Nigeria.
The eCommerce storm has swept over the world in recent years, with a lot of businesses in the United States and the United Kingdom adopting eCommerce platforms to sell their products to customers.
Even though brick and mortar stores are still very much in existence, online retail stores have proliferated the retail landscape and consumers in USA and UK are becoming more and more reliant on online shopping. In fact, current retail trends show that 51% of Americans prefer online shopping, with e-commerce growing 23% year-on-year.
With the many advancements in technology, an entrepreneur does not need a physical location in order to break into retail business. Social media has become a major way of doing business thereby providing free and effective platforms for advertising and marketing.
The American ecommerce store, Amazon, is currently valued at $685bl which makes it the most valuable brand on earth. Part of its success can be attributed to a robust platform and strategy of retail and distribution across the world’s largest economy-the United States of America.
Due to the popularity and profitability of Amazon, it has led a lot of entrepreneurs to try to recreate the “Amazon magic” in Nigeria and other African countries. From Jumia, Konga, Yudala, Dealdey, Wakanow, Jiji, OLX and Payporte, there have been a lot of companies that provide eCommerce services in Nigeria, while providing jobs to the teaming populace of the country and seeking to increase the popularity of online shopping.
The advent of eCommerce in Nigeria can be traced back to the year 2012. However, it wasn’t until 2013 that it really started generating buzz among the people. From 2012 till 2016 there’s been at least 500 e-commerce businesses launched across Nigeria, with a few now established as popular household names.
From the view of the customer and the general public, it seems e-commerce in Nigeria is the next big thing to get into. People have arguments on the estimated monthly revenues and profits that companies like Jumia and Konga generate.
A lot of people are of the opinion that eCommerce businesses are making a lot of money in Nigeria. Little do they know that this is not the case, and that there are several factors still hindering the development of e-commerce in Nigeria.
In the year 2017, the eCommerce market industry in Nigeria was reported to be valued at about $13 billion (N4.5 trillion) according to Thisday Newspaper. The National Bureau of Statistics (NBS) is projecting that in 2018 it could hit N10trl.
Even though these projections by the NBS may look promising, the truth still remains that eCommerce in Nigeria is faced with a lot of challenges and it is not in any way as profitable as what is obtainable in USA and UK. Just recently, Zinox Technologies acquired Konga operations and OLX recently shut down its office in the country.
Even though Zinox has issued a statement that its acquisition of Konga will lead to an improvement in the eCommerce ecosystem of Nigeria, the fact the OLX has closed down its operations in Nigeria still raises concerns over the impact of the business model in Nigeria.
Why eCommerce Businesses Boom in USA & UK But Fail in Nigeria
Case Study 1: Konga, an ecommerce company that is estimated to be worth about $34 million has been recently bought from its previous owners Naspers and ASB Kinnevik by Zinox Technologies one of the strategic tech companies in the nation. According to Zinox, the acquisition will lead an improved strengthening of the value chain.
Case Study 2: Efritin an ecommerce firm and subsidiary of Saltside Technologies shut down its operation in Nigeria in the year 2017 due to factors such as high cost of data, the recession that hit the country at that time and the ever increasing operations cost.
Case Study 3: OLX a subsidiary of Naspers admitted that even though their decision to stop operations in Nigeria was a difficult one, they had to so in order to consolidate their operation across the globe. This is part of efforts in recalibrating its operations, by leveraging on its leading market in Africa, South Africa.
Nigeria has lost millions of dollars in investments with the exit of key e-commerce players (namely Efritin and OLX), hundreds of young vibrant workers who have been disengaged, opportunities for leveraging a viable e-commerce ecosystem (which can be reworked), valuable assets and revenue.
E-commerce platforms may be new to the Nigerian market but it is a business that has successfully flourished globally, and it seems to be failing in the Nigerian market. This comes as a surprise because of the amount of capital that is pumped into these e-commerce platforms in order to make them succeed.
Here are some of the reasons why ecommerce businesses are thriving in the UK and USA but still struggling to find its footing in Nigeria.
1. Payment on delivery: a lot of ecommerce stores in Nigeria make use of the pay-on-delivery mode of payment in order to have a competitive edge over their competitors, yet, it has led to e-commerce companies suffering from major losses.
If a customer who had previously placed an order decides to cancel the order when it is already in transit, the payment of logistics like delivery and transportation of the item falls on the e-commerce company. Due to the loses that come from payment on deliver, it comes as little surprise to some that Konga has recently discontinued this feature. However, Jumia, and a few other major e-commerce platforms still has this option.
2. Disruption of the normal delivery chain: the ideal delivery chain in ecommerce consists of a customer who makes an order through the ecommerce platform, a merchant sending the requested goods and an e-commerce platform that acts as a middleman. However, some delivery men have upset this balance.
There have been a lot of cases where delivery men connive with the merchants to sell products directly to the customers at cheaper rates thereby diverting business from e-commerce platforms and cutting them out as the middleman, thus reducing their profitability.
3. Poor customer service: ideally, customer service should be the heart and soul of every business. However, there have been many reports of most e-commerce platforms having poor customer service with the customer support platforms either being slow to respond to complaints or not available to respond.
At times, even when issues are reported, they are not attended to. This unprofessional attitude has raised many questions of accountability and resulted in the loss of customers’ confidence in e-commerce platforms.
4. Low standard products: a lot of customers have complained about purchasing goods from these ecommerce stores only to discover that they are of very inferior quality as opposed to what was advertised. In addition, there has been quite a lot of complaint about customer getting goods that don’t match their online description or that have some key features missing.
This has led to many customers refusing to return to e-commerce platforms to buy items in fear of receiving low-quality items.
5. Unfavorable Business Climate and Government Regulations: setting up a business in Nigeria is fraught with more difficulties than in most countries. Nigerian laws are too stringent for businesses to run smoothly. There is an enormous amount of trouble (and bureaucracies) to face when trying to register a business in Nigeria, and once that’s done, there’s a huge amount of tax to pay too.
Apart from these, the cost of running a business in Nigeria is unusually high. Expensive power and transportation costs have negative impacts on e-commerce businesses as well, making business hard.
6. High Costs of Logistics and Warehousing: transporting goods to customers within Nigeria has always been faced with major challenges. The fee charged by delivery companies to transport products from one point to another in the country is always on the high side. Granted, there has been some ecommerce specific logistics companies which has emerged with lower price, however, consumers would rather not pay any delivery fee no matter how little.
The major problem now doesn’t just lie with the consumer’s inability to pay, but also the consumers location and his or her availability. Some consumers live in areas that are not easily accessible or don’t have proper street names and numbers, and so, whenever logistic companies try to deliver items to them, they lose a lot of money from fuel and bike maintenance, trying to locate them.
These unhealthy operation affects the profitability of even the logistics companies, and as such, most of the time after an attempted delivery to a customer is unsuccessful, they return the items back to the e-commerce company. Then both the e-commerce company and the logistics company lose out on the transaction.
7. Low internet penetration and network unavailability: this is a major issue in not just Nigeria but most African countries. Internet penetration isn’t at a stage that will favor ecommerce. In addition, internet connect is not just only costly, it is also not always available due to many reasons. If you do not have steady or reliable internet connection, placing an order online will be a very herculean task.
8. Trust issues: a lot of Nigerians harbor skepticism towards technology and things that are new in general. Millions of Nigerian do not want to use their debit cards online because of the popular notion of online fraud and terrible product qualities.
In fact, just a bad experience from one online store can affect how a consumer sees every other online business and as such it reinforces in them the need to want to see a product before the pay. A lot of people still believe that when they pay before delivery of goods, they will just end up being scammed. Most people would hardly offer to pay for goods up front.
In addition, a lot of Nigerians do not trust that ecommerce stores will deliver exactly the goods the promised on their website. Some customers even go as placing six to seven orders of the same items and them picking just one because they want to compare between the orders and choose the “best”. With several factors greatly affecting the lack of trust on the consumer end for local e-commerce businesses, almost all online stores continue to record negative cash flow numbers.
9. Low Purchasing Power: the truth still remains that the purchasing power of the average Nigerian is quite low when compared their people in UK and USA. The country has been rocked by wave after wave of recession which has plunged a lot of the citizens further below the poverty line and as such the average Nigerian doesn’t allow much allocation for shopping, either physical or online.
For a growing number of the population, their priority has become finding enough food to eat, shopping online comes farther down the list.
10. Poor Infrastructure: the infrastructures in Nigeria are not yet sophisticated enough to be able to cater for speedy delivery of ordered goods. Usually, goods that are ordered from most ecommerce stores in Nigeria take time to arrive to their customers. Presently, delivery of goods is most efficient in some selected places in Lagos, Abuja and Port Harcourt.
11. Population size versus ability to use e-commerce: Nigeria is the most populated black nation in the world. So in theory, there is a large population of people who should make use of ecommerce stores. However, apart from the usual suspicion and poor infrastructure -there’s the brutal truth that’s revealed by looking beyond population sizes to the actual ability to use e-commerce platforms.
While there are 100 million internet subscriptions in Nigeria, this number only represents a potentiality, because only 9% of people in the country (17 million people) use social media. It goes without saying that not everyone on social media makes use of online shopping, so the pool of potential customers for ecommerce stores is quite limited.
Swedish company Kinnevik reported in 2016 that Konga, which it had a stake in at the time, had only 184,000 active customers – less than 0.001% of Nigeria’s population that year.
12. High product price: when you factor in the cost of purchasing a product and importing it into Nigeria, the end result is that the retail price of the good tends to go up significantly. In addition, most ecommerce stores cannot afford to buy goods in a very large scale and as such, they miss out the opportunity of economics of scale which more often than not means that the items they sell are usually cheaper in the market.
The current inflation ($1 = N360) being experienced in Nigeria has not helped issues in any way. The recession has resulted in an increase in product price and a lot of consumers now prefer brick and mortar business to online stores for obvious reasons. One way by which ecommerce stores in Nigeria can mitigate high product cost is to buy and sell made and manufactured in Nigeria goods.
13. Irrelevant Advertising and Marketing Channels: a lot of small ecommerce businesses usually make the mistake of placing ads of their ecommerce stores on bill boards, radio, television and many other physical channels that run into millions of Naira wasted. This type of aggressive marketing can work for bigger ecommerce stores like Jumia and Konga, but they can be a step in the wrong direction for new ecommerce businesses that are just starting up. The error of their ways dawns on them when they run out of money and then have to go out of business.
Granted, placing adverts in billboards and radio promotions is not a bad idea, however, if your business has very little working capital then this is not for you.
Another mistake that new ecommerce business in Nigeria make is to startup Facebook ads and target every part of the country with all interests selected. This just result in the business spend a lot of money on advertisements which end up milking the startup dry and putting it out of business.
For instance, if you are into the fashion niche, it is best for a startup ecommerce stores to approach Facebook ads by first targeting users majorly located in Lagos, Abuja, and Port Harcourt. These three regions have the highest customer conversion rates in Nigeria. The next thing would be to target only people that indicated an interest in fashion. The last metric would be to select only those between the ages of 24 to 45.
This increases your chances of only hitting the working class, since 90% of e-commerce purchases in Nigeria are done by the working class. By setting up your ad this way, you will ensure that you market your goods to the people who have the highest chance of buying your items thus putting your money to the best use.
14. Investing in Unimportant Software and Services: every smart business owner should knows how to use the appropriate technology to drive his or her business. However in Nigeria, quite a number of ecommerce startups spend a lot of money on software and services that they do not need (yet).
For example most ecommerce businesses, knowing full-well that they are not yet financially stable to go ahead to pay for premium services online, such as paying for a premium version of Hootsuite instead of using the free package, paying about $300 a month for a VPS hosting when they could start from a $6.99 a month shared hosting, and much more.
These unnecessary expenses can cripple a business from the get go. Discontinue the use of all paid subscription and only start to use those subscriptions that are very necessary for your business to function.
15. Increasing Competition: a lot of misguided entrepreneurs who over estimate the profitability of ecommerce in Nigeria still go head to set up their online stores, thus splitting the revenue of all stores in general. A lot of competition at this stage of the Nigerian e-commerce wave is not too healthy for the sector. However, competition is still vital in order to invigorate the ecommerce sector and give customers the best of products and services.
In conclusion, ecommerce in Nigeria is faced with a lot of challenges, but these challenges can be surmounted with the right approach. Ecommerce in Nigeria has the capacity to be just as profitable as what is obtainable in developed countries of the world such as UK and USA.
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