The overwhelming success of the few large malls opened so far testifies to pent-up demand for modern, formal shopping in Nigeria. With 33% of Nigerians having regular internet access according to the World Bank, the potential for e-commerce is significant. Yet Lagos has only three malls of more than 20,000 sq metres compared to 74 in South Africa’s largest city, primarily due to challenges in land access. In the past year a number of online marketplaces have emerged to bridge this gap. With strong interest from blue-chip international investors, the new web-based retailers are building trust in online payments and overcoming logistical challenges with their own distribution networks.
START-UPS: The flow of successful e-commerce start-ups began in earnest in 2010, after strong growth in Nigeria’s active internet users. Among the newer start-ups are DealDey, a local version of the Groupon model, which was launched in March 2011. By December 2012 the company claimed $1.27m in total online sales. By the third quarter of 2013, the site had 1600 participating merchants and received a $1m investment from Sweden’s Kinnevik, an early Groupon investor. Other sites like Buynownow, webMalling or 1500Naira have also emerged. Buycommonthings.com was launched in 2012 and is the largest online supermarket selling basic items.
PORTALS: In July 2012 two new ventures pioneered local Amazon-type platforms in Nigeria. Konga.com, launched by the founder of DealDey, Sim Shagaya attracted investment from Kinnevik. South African media giant Naspers’s subsidiary MIH Internet Africa acquired a major stake for an undisclosed sum in March 2013, according to press reports. Starting with depot warehouses in Lagos, Abuja and Port Harcourt, the retailer offers goods as diverse as cosmetics, clothes, DVDs, books, toys, freezers and televisions, on behalf of itself and third-parties ranging from larger companies to small traders, which are charged a small fee.
Alongside Konga is Jumia, another e-retailer which has also grown rapidly. Since launching in July 2012 the firm raised a total of $70m from US bank JP Morgan, private equity firm Summit Partners and Millicom, which operates the Tigo mobile brand, but not in Nigeria. The company also received $10m from Rocket Internet, a German start-up incubator and angel investor that has launched sister sites in Egypt, Morocco and Kenya.
PAYMENT SYSTEMS: With fear of online fraud running deep, retailers have bridged the distribution gap in innovative ways. As PayPal shut down all transactions in Nigeria in 2006, even refusing to transact with Nigerian IP addresses for a time, a number of local independent transaction-processing platforms have emerged including e-naira and ePayNigeria, though their popularity is constrained by their lack of credibility. Until 2009 the only means of payment for online purchases was for Nigerians to deposit money in the e-retailer’s bank account before a sale could be processed.
Three payment and card operators – ValuCard Nigeria, part of Visa’s network, Interswitch and eTranzact – have moved to offer online payments switching, while the Central Bank of Nigeria has established the Nigeria Inter-Bank Settlement System (NIBSS) Electronic Fund Transfer switching system. Yet it has taken time for shoppers to trust online retailers. According to a 2012 survey conducted by financial inclusion agency Enhancing Financial Innovation and Access, 92% of adults have never used online bank transfers.
MasterCard included Nigeria for the first time in its global online shopping survey in 2012, covering 12,500 working-age consumers exposed to the internet. The survey found that 92% of Nigerians who had shopped online were happy with their experience, with 57% of this group intending to repeat online purchases and 59% purchasing from international websites. However, the majority of Nigerians (78%) do not shop online, and 59% of that group said it was due to security concerns. Both companies have said their target demographic was between 18 and 34 years of age. “The sweet spot for online retail in Nigeria is the young couple in their 20s living in Lekki,” Shagaya told OBG. “While the number of online shoppers is low, their order volumes are high.”
Although the two retailers estimate some 40% of their traffic comes through mobile smartphones, only around 10% of sales are conducted through mobiles. The retailers claim they would see higher conversion of traffic into sales on mobile devices if simpler and more efficient payment mechanisms, such as Amazon’s one-click, were introduced. Yet both sites report highly loyal consumers, who often visit the sites frequently during the day to place a stream of small orders.
CONVERSION: The retailers accept cash-on-delivery (COD) payments to bridge people’s mistrust of online shopping, expecting to convert them to e-payments at a later stage. “COD still represents the majority of our payments, but after a few such payments shoppers tend to switch to online payments,” Tunde Kehinde, the managing director and co-founder of Jumia, told OBG.
The value of Nigeria’s online payments has risen exponentially, from $314m in 2010 to $488m in 2012, according to the NIBSS. Local analysts expect the total to reach $630m in 2013 given rising sales at the main portals. The “cash-light” policy aimed at encouraging electronic transactions started with Lagos in 2012 and could act as a feeder for growing e-payments channels. In March 2013 Konga and Jumia claimed to be filling 1000 orders a day combined; by September 2013 both ranked among the top 25 sites in Nigeria. Yet authorities have high hopes of further growth, citing Western economies like the UK where e-commerce is expected to account for 10% of GDP by 2015, or roughly $200bn annually. Omobola Johnson, the minister of communication technology, said in July 2013 at a Lagos conference hosted by Jumia that she expected some 6.2m new jobs to be created by year-end 2015, testimony to the government’s ambitions for the market.
LOGISTICAL CHALLENGES: Given the underperforming postal service, poor road conditions and often unspecific addresses both in major cities and rural areas, online retailers have built independent distribution networks to ensure efficiency and a satisfactory end-user experience. Both portals have agreements with suppliers, particularly in the electronics segment, to ensure a regular and timely supply. Indeed, by providing a five-day delivery guarantee nationwide, both retailers have set high standards to foster a loyal client base. Konga and Jumia have built their own networks of vans, tuktuks and motorbikes for deliveries in Nigeria’s main cities, while parcels going beyond these centres are outsourced to DHL. Konga operates sorting centres and deployment points in 10 major cities, but cites inflation in leasing rates as a major concern.
UP AHEAD: As online retailers grow they are developing their distribution reach, and major challenges have created opportunities for local entrepreneurs. Backed by international investors, a growing number of start-ups are channelling pent-up demand for modern sales channels into a transparent, formal market. While online shopping will likely never replace traditional retailers entirely, the market could grow to fill a more significant share of consumption than in other markets, given the paucity of available global brand names relative to emerging economies in Asia or Latin America.
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