If you had to pick any industry that Africa seems to
have clung onto since its tech boom, it has to be
ecommerce. For the most part, it’s relatively easy to
set up an ecommerce shop. There may be some
logistical challenges, but it seems to be an easier
industry to play in.
Ecommerce globally is a big deal these days, but
the fall of EcoMom shed some light on online
shopping’s dark side. A telling report by the
company’s financial controller, Philip Prentiss (one
of only three people with knowledge of the
company’s financials), exposed how the company
was trapped into a loss-making spiral. In essence,
its discount model meant the more products it
sold, the more money it lost.
For an ecommerce startup, EcoMom had a lot of
cash from investors. It also had a good product
and, by all accounts, should have been a success.
On the surface it was, but on paper it was failing.
Prentiss’s postmortem analysis of the company’s
financials tells the story of how some ecommerce
businesses can become a victim of their own model.
It seems that for a every buck ecommerce
businesses make, they can lose even more due to
heavy discounts, free delivery and competition.
So why is everyone in Africa jumping on this not-
too-stable wagon?
“As the next frontier, Africa is seeing some good
investment from credible investors, which is helping
to drive growth,” says Daniel Guasco, head of
Groupon South Africa. He reckons that if you
compare “brick and mortar as your starting point,
an ecommerce company is easier and quicker. You
don’t need retail space and shopping centres”.
This is one of the things that makes this space very
attractive – you can start with little to no money
and help already established businesses bring their
products online, leaving them to handle the
logistics. All you need to do is set up a site and
integrate a payment gateway.
However, ease of access cannot be the only reason
why this space has boomed and why people want to
create their own sites, no matter how saturated it
gets. For Konga CEO Sim Shagaya, the Nigerian case
for ecommerce is quite simple: lack of formal retail.
“Nigerians have been on the search for a great
shopping experience, which they weren’t used to
with traditional brick and mortar stores found in
majority of cities in Nigeria,” he says.
That for him is the inspiration for his company: to
empower Nigerians by giving them access to a great
selection of goods and great prices which are
different from what is found in their locality.
If you think about it, online shopping makes sense
for Africa and its growing middle class. As a
continent with mostly developing economies,
increasing broadband access and a status as the
“rising” continent, it follows that Africans will be
enthusiastic online shoppers. The African consumer
is transacting on mobile devices playing with
“petty” ecommerce, if you will, through airtime
purchases and other virtual goods – so why not
everything else?
So of course it’s big here. It is big here for the
same reason it is big everywhere else, Paul Galatis
of luxury kitchenware site Yuppiechef notes.
“A heightened interest in Africa and its potential
from international investors who all want to be
early movers on the continent,” is also a big
contributing factor to the ecommerce boom, he
says.
It is a great space to invest in, says everyone, and
at the rate new stores are popping up it must make
good business sense, yes?
Maybe.
According to Galatis, fewer than one percent of all
retail transactions in South Africa are being carried
out online. This number is significantly higher in
the United States, where he estimates this number
to be between 10% and 12%.
“In Africa, I have no doubt this number is tiny —
but I believe this that has to do with a
combination of: limited but growing access; limited
but growing disposable income; but, most
importantly, the limited number of online stores
delivering exceptional experiences to the people of
Africa,” he adds.
So it is a long game and a waiting game, but why
are some of the big players with big money running
from it?
A few weeks ago Naspers announced that it had
effectively shut down some of its more niche
ecommerce players, which were all part of the
company’s African Internet Accelerator (AIA)
programme. The programme was founded in the
spirit of South Africa’s supposedly booming
ecommerce scene. Is this no longer the case?
For the emerging markets media and internet giant,
it seems it is a case of segmenting its “focus
specifically on the general e-tail businesses such as
Kalahari”. So go where the money is and don’t
bother with too many shops.
The case isn’t that much different in Nigeria,
though Shagaya takes a more optimistic view to
profit and return. Infancy, rather than lack of profit,
is the real problem he says.
“Ecommerce in Nigeria is still in its very early
stages, the growth of ecommerce in this region will
be a lot different from what we have seen in the
West. We are building this system out in a way that
will work for our own people,” he says.
Gausco agrees. The vision is long-term and that’s
where the real return is, he argues.
“You need substantial infrastructure and much
resources to properly grow establish a ecommerce
company in Africa – probably more so than
developed markets – as you don’t just need a store
front you; normally need to build the logistics and
customers service etc yourself,” he says.
Zando’s CEO Sacha Breuss argues that the last year
has been a successful one for the company.
“We have been able to continuously grow our
portfolio, underlining our position as South Africa’s
biggest ecommerce fashion destination with more
than 20 000 different products online,” he says.
But he does not mention whether or not the
company, which is rumoured to have retrenched
some staff last year, saw any profit this year.
Nonetheless, he maintains that the company is
“convinced that this is the basis for a profitable
and healthy growth going forward”.
“There is a very small market. Online retail in Africa
is difficult. Where do you get the product to sell in
Africa?” asked Emilian Popa, CEO of Africa Internet
Accelerator at Tech4Africa last year.
He cautioned against the ecommerce business in
Africa unless you had the money to burn and were
willing to wait. The way he saw it, Africa’s
challenges when it comes to ecommerce were
sometimes far too great and sometimes outweighed
the reward.
The future of his company is uncertain at this
stage.
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