Jumia’s Surviving Strategies Despite Market Challenges

Jumia’s Surviving Strategies Despite Market Challenges

Jumia, Africa’s surviving e-commerce platform, is faced with current market challenges where majority of Africans still largely believe in physical market place where they converge to buy household items and foodstuff, but Jumia is optimistic of surviving the storm, though its coordinated strategies, writes Emma Okonji

E-Commerce business across Africa, where Jumia plays big, appears to be fraught with challenges that could likely weigh down any business with future prospects. Although e-Commerce challenge is not peculiar to Africa, as it took Amazon up to nine solid years to become profitable in the United States of America, and later turned out to be the best market for e-commerce in the world. However, Africa’s orientation and culture, coupled with the low level of broadband infrastructure across the continent, must have heightened the challenges of e-Commerce in Africa, where the majority still prefers to buy from an existing physical market space, rather than going digital to shop online.
As at 2000, when Amazon newly launched, not many people believe it will survive because of the low broadband and low internet penetration at that time, but with specific strategies, Amazon scaled through the storm to become a global brand in today’s e-cCommerce business.

Lehman Brothers an analyst, had in June 2000 said: “Amazon is hemorrhaging cash and might not survive. It struggles with a weak balance sheet, poor working capital management, and massive negative operating cashflow — the financial characteristics that have driven innumerable retailers to disaster through history.”
Just like Amazon, Jumia and other e-Commerce platforms are showing positive signs of survival. On the part of Jumia, it has rolled out different business strategies that will make the online shopping business most successful.

E-commerce challenges

Looking at the global challenges of e-Commerce, a former CEO of Jumia, Marek Zmyslowski said the success of Amazon’s story could be regarded as far from a smooth ride. According to him, they barely made it through the Dotcom bubble and had to face a lot of negative press, skeptics, and simply pure haters through most of the nineties. Amazon was even lucky that Social Media was not as global as it is today, where every critic make unverified comments. “The single most important reason Amazon survived it’s first 10 years is the fact that they raised enough money, sometimes only weeks before going to the next level. All the Amazon cool products and features praised nowadays came way later. In Media headlines, it’s always either the end or salvation of the world. Drama gets clicks. Press exaggerates stuff. Markets work in cycles, so does media and it’s sentiment. Financial Times called Jumia “Amazon of Africa” already in 2013. CNBC made a video about how Jumia is beating Alibaba. You can’t praise someone forever, it gets boring. Bringing a hero down is what people love to see. Just ask Batman or Superman. Once editors run out of positive angles, they hunt for negative ones. That works in searching for topics about Apple, Google, Facebook, as well as AI, Renewable Energy, among others,” Zmyslowski said in one of his articles.

In the article, he further explained that out of five negative articles written against Amazon, only one of them was written by a trained journalist working for the title. All the others he said, were either op-eds, written by someone from the outside, an anonymous writer, or a former fired Jumia employee. “Everyone has a dog in this fight and is either long or short on Jumia, including myself. A large portion of my book is about my personal experience and reasons for leaving the company I helped build. But I do acknowledge the big picture here,” Zmyslowski added.

The challenges before Jumia

African businesses generally, including startups, have a lot of challenges with fund raising, which most tines slow down prospective business ideas. Citing the challenges faced by Jumia in terms of fund raising, Zmyslowski said: “There is a lot of frustrations among African entrepreneurs, many times very valid ones. It’s much harder for them to raise money from International VCs due to a lack of trust towards them. And African investors, on the other hand, largely don’t understand the technology as a sector. Jumia takes a lot of the blame for the “foreign vs local”, “African vs European” “white vs black” animosities.

Some people just want to see Jumia burn for reasons not related to business. They are cheering at the “neocolonizer” retreating and having problems. I must say that in many cases I was disappointed to see people who I considered reasonable and established entrepreneurs and executives, engaging in spiteful twitter rants about Jumia, where the only tangible thing that got disclosed in those rants, was their personally motivated disgrace towards Jumia. Germans have a word for it: “Schadenfreude”. Which means a pleasure derived by someone from another person’s misfortune.

Jumia as a global brand

Trying to define the nationality of a global company in the modern world is impossible and pointless. It’s impossible because there is simply no global consensus about what to take into account. What counts and what doesn’t? Is Citizenship of the founders as important as passports of later-stage investors, who now have the majority? What if the investor is a multinational company? Is the startup HQ location important? What if the HQ is just a cost center (pays no taxes) and the IP (intellectual property) is hidden in a different entity in a different country? What about the location and nationality of the clients, employees, and other stakeholders? What if they are complicated entities too? These were the thoughts of the former Jumia CEO, Zmyslowski.

According to him, passports and nationalities have become just another commodity, and both corporates and individuals can change them. This is why the whole conversation is also pointless. But when Jumia used the Africa context in its IPO communication, all hell broke loose. And the drama even earned its own Twitter hashtag #jumiaisnotafrican. It seemed like all those frustrations towards Juma finally found its way out. And the business sharks were watching from thousands of miles away.

Jumia’s financial strategies

According to Zmyslowski, Jumia’s average Short Volume Ratio, which is the number of shares short in a stock divided by the stock’s average daily trading volume, for the last 12 months is around 25 per cent. In financial markets, anything above 10 per cent is pretty high and above 20 per cent is extremely high. Jumia’s short interest is higher than Tesla’s 24 per cent for the last 12months, which was considered as the short-sellers favorite victim globally. Zmyslowski said the value of the public stock is simply a result of the investor’s/buyers’ confidence in the company’s future.

Citron Research is an investment company banned from Hong Kong stock exchange and sanctioned by the American Futures Association, in both cases for disclosing false and misleading information. Citron has decided in 2019 that “fresh out of IPO” Jumia is its next target. They have combined a lot of scattered information about fraud among Jumia sales people. Such fraud has always been a common thing across the Globe in every department where people are paid only commission from sales. Citron took those stories and made it look like it was all a grand scheme orchestrated by the people at the very top to inflate the valuation before the IPO. The truth was that the fraud amounted only for a couple of percent of the GMV, and had no effect on the financial results. But the story was out, useful idiots kept sharing it online like there was no tomorrow. The damage has been done. Stocks have plummeted, short-sellers have made a fortune, Zmyslowski said.

Jumia’s CEO gave an overall decent interview on CNBC during the IPO. Unfortunately, he got caught off guard and his not the luckiest statement about not enough developers in Africa cost Jumia a big backlash in the home market. Obviously, there are many developers in Africa. In 2012 however, every major local startup (Konga, Slimtrader, Wakanow, and others) was struggling with building local dev teams and in most cases outsourced it at some point for example to India. Challenges in building eCommerce in Africa are more offline related than online, and at an early stage of growth, people simply want to focus on other priorities than building own tech.

Zmyslowski however said when Rocket Internet puts its first steps in Nigeria in 2012, people complained and said this Clone Factory is here just to quickly build a business, suffocate local competitors, and cash out after 2–3 years on the company’s success, before anyone notices. Rocket, although being a very active global investor and venture builder, doing mergers, acquisitions and exits every year, did the opposite, stayed with Jumia for eight years, pumped hundreds of millions of dollars, and brought new investors on top of that. Rocket stayed with Jumia through thick and thin, pushed it through a tough IPO process.

Marketing e-Commerce

Zmyslowski is of the view that the world has to look at purchasing power, internet adoption, the precision of addresses, online payments trust, merchants’ reliability, logistics services, currency fluctuation… and end with having access to running water and 24/7electricity in your office. We are talking about the biggest economy in the World (the USA in the 90s with e-commerce growing 300 per cent YoY) and Nigeria, a country where n 2017 Google was renting street billboards to educate about its search product. According to him, everyone benefits from Jumia, even the skeptics.

“There is only a handful of companies in sub Saharan Africa that did even remotely as much good for the ecosystem as Jumia. The IPO itself validated the market and many fund managers got their investments thanks to that. Hundreds of Jumia employees went on to become founders and raised money from investors thanks to Jumia in their CV, and thousands got a better position in a different company thanks to their e-commerce background. Hundreds of millions of dollars were pumped into offline marketing through local marketing agencies, printing shops, billboard owners, etc. Market education is the hardest to quantify but probably the most important argument among all of them,” he said

Effect of COVID-19 on businesses

The former Jumia CEO, in a statement, said Jumia might be one of the few winners of the COVID-19 lockdown. Technology adoption within total addressable market has always been the issue. China’s post lockdown numbers have shown that many of the first time shoppers from lower-tier cities have come back for further purchases. That is exactly what we need here too.

“There are so many challenges that need to be addressed for e-commerce in Africa to become hot again and it’s very likely that no one has cracked those challenges yet. No one benefits from Jumia’s problems besides short-term-thinking short-sellers. What made me fall in love with Nigeria when I moved there many years ago was the omnipresent hustle and absence of whining. This impression got only stronger with every new African country I’ve been to. More hustling, less hating. This is not a zero-sum game. There’s enough room for everyone,” Zmyslowski said.

Related Articles