As I suggested a few days ago here, that Jumia would be better served pursuing a pan-African fintech playbook over an ecommerce one, the company has started the redesign. Jumia has left Cameroon and Tanzania over the last two weeks. The most painful thing, though, is that the company could not sell to any local operator. It simply closed the shops, fully or partially, like the ways Kalahari, Mocality and others did many years ago. You may read this seminal piece I wrote in the Harvard Business Review on ecommerce in Africa to understand the challenge in the sector.
Now on Jumia, I think it needs to spinoff JumiaPay and sell Jumia, the ecommerce business to anyone that can buy. That disposal can happen at local level where Jumia Nigeria sells to a player in Nigeria while Jumia Kenya is sold to another company.
Largely, as I have noted here many times, operating a pan-African ecommerce venture is hopeless, because your marginal cost instead of going to near-zero, as you scale, turn into a curve that looks like an average fixed cost curve (a shape that is similar to the one you see in Dangote Cement which confirms that ecommerce in Africa is a physical business, not electronic). When that happens, scale does not bring efficiencies on transaction and distribution which are critical for the profitability of digital businesses.
I project that Jumia will shrink from 14 countries it began November 2019 to eight countries by Q2 2020. Once it does that, it would begin to see some elements of profitability (not immediate but on the horizon) even though its GMV will drop.
This redesign is key – geographical footprint means nothing in Africa. There are about five countries in sub-Saharan Africa that matter; others are just for shows. Do not think that being in 14 countries would deliver leverageable opportunity if you cannot validate your hypothesis in three. Our markets are heterogeneous in nature making lessons learned not easily transferable. Yet, you can use large footprints to raise capital at higher valuation; Jumia used that playbook. But at the end, for non-electronic businesses like Jumia, hitting profitability becomes harder.
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