It’s still early in the new year and we have already witnessed the first confirmed shutdown of a Nigerian start-up. DealDey, a popular Nigerian e-commerce platform has shut down operations and let its staff go.
Launched in 2011 by founder Sim Shagaya [also Konga founder], DealDey is an e-commerce platform that features daily deals on the best things to do, see, eat, and buy in Nigeria. It is said to have shutdown operations in December of 2018, 2 years after being acquired by Rinigier Africa Deals Group (RADG) for $5 million [the owners reportedly initially offered to sell it for $75 million].
This isn’t surprising as we have seen other Nigerian e-commerce platforms like Efritin, OLX, Camplus and Kaymu (Jumia Marketplace) shutdown in recent times. Even a lot of the surviving e-commerce platforms are not doing so well. Konga was acquired by Yudala at a loss just 2 months after cutting 60% of staff strength, Payporte was reportedly owing staff salaries sometime last year and Jumia was reported to have made a loss of N53 billion.
So what is it? What is killing Nigerian e-commerce start-ups?
Well I don’t know for sure but here are a couple of things I believe might be contributing to their failures.
1. Lack of adequate market research: This is a common problem with a lot of startups around the world. It is very important to carry out adequate market research to have a better understanding of your industry and your target market. For example, I have seen a lot of Nigerian start-ups quote the Nigerian population [above 190 million] as their market size. This is wrong and usually leads to wrong market evaluation which affects the projected revenue. The market size for e-commerce in Nigeria is really not as big it seems. In July 2016, Kinnevik, a company which owned 34% of Konga at the time, released a report that showed that Konga had only 184,000 active customers. That was less than 0.1% of Nigeria’s population at the time. Having a better understanding of the target market, user behaviour and amount of disposable income they have will go a long way in designing the best model for that market.
2. Distrust for e-commerce websites: Another issue is that a lot of Nigerian consumers might not feel comfortable shopping on e-commerce sites. There have been a lot of cases of wrong product delivery or goods not matching their online representations in terms of looks or quality. Besides, consumers want to ask questions about the product, they want to see, feel, negotiate the price and probably even try out the product before paying for it. It’s what feels natural to them and it’s how Nigerians have carried out commerce for the most part of their lives. Most e-commerce sites currently do not satisfy this need.
3. Cost of customer acquisition: In a bid to remain competitive and increase the number of active users & transactions carried out on their platforms, most e-commerce companies spend a lot on marketing and advertising. Marketing is done through online ads, discount deals, sponsored events and so on. After some time, the law of diminishing returns takes effect and the cost of acquiring a new customer becomes more than the total amount the new customer spends on your platform. So the company starts running at a loss but can’t reduce the marketing budget so as to remain visible and relevant.
4. Process of purchasing goods: For a lot of Nigerian consumers, the process of purchasing goods from an e-commerce site is longer and sometimes less convenient than going to the market to buy the same goods. Look at it this way: The consumer visits the e-commerce site, finds the desired product, makes payment for goods (most likely at a higher price) and then waits for goods to be delivered within 3 -7 business days [not guaranteed] or pay extra for express delivery [1- 4 days]. A potential user is probably thinking, “why would I wait for my goods to get delivered to me, and risk the chance of it getting to me late. And then still probably not get exactly what I ordered for?”. When you don’t have a lot of disposable income, all these things mean a lot especially when the ordered goods can be found somewhere in your city.
This has resulted in people using e-commerce sites as a sort of “price checker” where they can get estimates of desired goods and then go to the market to buy it at a possibly cheaper rate. I have even found some users who do a Google search of the merchant’s name, get a contact address or phone number then proceed to buy directly from them at a cheaper rate.
5. Logistics: There wouldn’t be a list of Nigerian e-commerce problems without the mention of logistics. The process of storing and transporting purchased goods to customers around the country can be really difficult and expensive. Major e-commerce platforms manage multiple delivery/pick-up stations in different cities across the country to create a strong delivery network. The cost of managing these pick-up stations and transporting goods to and fro while ensuring delivery is done as quickly as possible can really take a toll on any company.
In 2017, the Nigerian e-commerce industry was predicted to be worth $50 billion in 10 years. This is exciting to look forward to especially with other areas of technology in Nigeria growing as well. However for this prediction to come true, Nigerian e-commerce companies need to take a second look at their processes, target market and general user behaviour to find the best strategies for the Nigerian market. I acknowledge that some of them have tried to do this in different ways but there’s still a lot that can be done.
Are there any other issues you believe might be killing Nigerian e-commerce companies? Please share them in the comments section below.