After suffering losses for more than ten years, Africa's largest cross-border e-commerce platform has shut down its operations in multiple locations | Focus Analysis

Author | Lin Qingqing

Editor | Yuan Silai

The competition between Amazon overseas and Temu is intense, while the African e-commerce market is developing steadily in a relatively independent environment.

Although international giants are increasingly deepening their layout in the African market, the African local e-commerce platform Jumia is still cultivating its own "patch of land" on this ancient continent. It is the e-commerce platform with the highest market share in the African e-commerce market, accounting for more than 24% of the African e-commerce market.

In April 2019, Jumia was listed on the Nasdaq, becoming the first African e-commerce company to be listed in the United States. During the "Black Friday" in 2021, its GMV reached 150 million US dollars, an increase of 30% year-on-year, and the number of orders reached 4.3 million, an increase of 39% year-on-year.

Recently, Jumia announced a major decision: they decided to close their businesses in South Africa and Tunisia.

This decision was made after evaluating the growth potential and profitability of different markets in Africa. The order volume and GMV of the South African and Tunisian markets account for a relatively small proportion of Jumia's total business, with only 3.5% and 2.7% of the order volume, and 4.5% and 3.0% of the GMV, respectively.

"Although we have seen positive trends in some markets, in other markets, such as South Africa and Tunisia, we believe the medium-term growth and profit potential is low," the group's CEO Francis Dufay said in an interview with CNBC Africa.

It is not difficult to see that cutting off the business is a clear step for Jumia's expansion and advancement. Next, Jumia will continue to focus on nine core markets such as Nigeria, Egypt, Kenya, and Morocco to seek new growth points.

Chinese overseas companies have always hoped to enter relatively wealthy markets such as South Africa, Nigeria, and Ethiopia, but as the leading e-commerce platform in Africa, Jumia's choice to contract at present proves that the e-commerce industry in Africa is far from mature.

Surviving by Cutting Off the Tail

Africans have their own "Amazon".

Although Jumia is the largest cross-border e-commerce platform in Africa, it is not actually purely African in origin.

It can be seen in the public information that Jumia was co-founded in 2012 by former McKinsey consultants Jeremy Hodara, Sacha Poignonnec, Tunde Kehinde, and Raphael Kofi Afaedor, among whom Tunde Kehinde and Raphael Kofi Afaedor are Nigerians. It originated from the European Internet investment company Rocket Internet.

Jumia's business covers 11 African countries including Nigeria, Kenya, Egypt, and South Africa, providing an all-category e-commerce platform that supports the entry of third-party sellers, which is similar to Amazon's business model. The platform includes a shopping mall that links thousands of sellers and millions of consumers, provides multiple online vertical operation platforms, sells in local currencies, and each site operates separately with independent front and back offices.

The latest data shows that Jumia has linked more than 100,000 sellers. The platform has more than 1.1 billion monthly visits, and 80% of African online shopping consumers choose to shop through Jumia. The platform has more than 8.4 million active users, and the total order volume has been increasing year after year, reaching more than 38.9 million yuan.

In addition to the e-commerce platform, Jumia has also launched logistics service Jumia Logistics, payment tool Jumia Pay, travel service Jumia Travel, and food delivery platform Jumia Food, forming a comprehensive e-commerce ecosystem.

In addition, Jumia also provides a series of services and support to sellers, including store opening guidelines, investment promotion activities, partner programs, and seller knowledge bases.

Jumia has established a complete e-commerce system, however, the scale and system improvement have not brought high-quality returns. On the contrary, since its establishment in 2012, it has not achieved profitability until 2023, and Jumia has been in a loss for 11 consecutive years.

In the second quarter of 2022, Jumia's operating income and quarterly GMV both increased. In the same year, Jumia carried out large-scale layoffs and business restructurings to reduce losses and improve operational efficiency.

But entering 2023, Jumia's situation has become less optimistic. In the first quarter of 2023, Jumia's total number of orders, GMV, and active buyers all decreased by double digits. This is mainly affected by factors such as currency depreciation and business adjustments. Nine out of ten currencies used on the Jumia platform depreciated against the US dollar in 2023, which directly affected the performance of GMV. In addition, Jumia intentionally readjusted its product and service portfolio in the fourth quarter of 2022, including suspending its first-party grocery supply, logistics services, and food delivery business in specific key markets, which also directly affected the number of orders.

By the first quarter of this year, Jumia's financial situation has improved, but the number of quarterly active customers has decreased. They still haven't found a way to continuously attract users.

Jumia has been in a loss-making state for many years, and "not being able to make money" has become its biggest hidden pain. Since two years ago, Jumia has been trying to enhance its competitiveness in the African e-commerce market by optimizing costs and improving operational efficiency. This is also an important reason why Jumia had to choose to decide to close its businesses in South Africa and Tunisia at this time.

"Surviving by cutting off the tail" is Jumia's inevitable strategic adjustment. The African market has never been wealthy, and it has long been the consensus of entrepreneurs that it is difficult to make money. However, because the populations of several major African countries are young and the e-commerce penetration rate is low, there is no shortage of participants. Although Jumia has been deeply cultivating in Africa for many years, in the face of foreign giants, except for the first-mover advantage, it seems that it does not have any particular advantages.

The Hot Land of Africa

Although the African e-commerce market is still in the development stage compared to other regions in the world, its growth rate is rapid, and it has huge potential and development space.

At present, the number of African e-commerce users is still continuously increasing, and mobile payment and e-commerce are gradually becoming the first choice for consumers. In 2021, the number of African e-commerce users was 334 million, with a penetration rate of 27.9%. It is expected that by 2025, the number of African e-commerce users will reach 519 million, with a penetration rate of 39.5%.

In addition, mobile e-commerce dominates the African online retail market, with the mobile shopping share in Morocco, Kenya, and Nigeria all exceeding 50%.

Although it has attractive growth potential, the African e-commerce market is still limited by many factors such as imperfect infrastructure, payment problems, and high broadband costs.

Even so, giants are willing to take an early position, and they have enough patience and capital to wait for the African market to grow.

In August 2022, Amazon launched local domains in South Africa and Nigeria. In May this year, Amazon announced that its South African site Amazon.co.za was officially launched, which is Amazon's first market in sub-Saharan Africa.

Amazon's layout in the South African market includes offering 20 different kinds of selected products, covering local popular brands and international big-name products. At the same time, Amazon has also rapidly rolled out a series of preferential measures in the South African market, including free delivery, worry-free returns, and local next-day delivery, in order to attract and retain local consumers.

At the same time, as Pinduoduo's cross-border e-commerce platform, Temu is also rapidly expanding its business in Africa. At the beginning of this year, Temu launched the South African site, officially sounding the horn to enter the African market.

It is not difficult to understand that in the face of the aggressive foreign competitors, Jumia appears to be somewhat weak. Since its establishment, Jumia has raised 885 million US dollars through six rounds of financing, and its latest valuation is 520 million US dollars.

Where will Jumia's future go? The market is also anxiously waiting and watching. Years of losses are the result, not the only criterion for success or failure. Anyway, compared with foreign competitors, Jumia still has a first-mover advantage and scale effect in the African market. If it can grasp its accumulation in Africa over the past decade, slow down and re-examine the business and infrastructure issues, perhaps Jumia will usher in a day of turning losses into profits and finding new growth points.

This determination to "be a brave man and cut off the wrist" is a good start.