• Nigerians cut spending both online and at physical malls
• More platforms closing shops as shoppers switch brands
• Sub-sector’s revenue expected to hit $2,684.6m in 2024
• High interest rate ‘Easy Buy’ aid smartphone purchase
• FG plans regulations for sub-sector as operators move against fakes
The economic crisis plaguing the nation continues its rage across sectors and sub-sectors with electronic commerce operations seeing prices of goods rise by as much as 200 per cent in the last one year.
This crisis has equally slashed online traffic across the platforms by as much as 30 per cent, The Guardian has learnt. Players including Konga, Jumia, Glovo, Jiji, and Shopify, among others, are however strategising to remain afloat.
The brick-and-mortar shopping malls, such as Shoprite, Spar, Boku, Jendol, Globus and JustRite are equally not immune from the economic shocks as there has been a decline in leg traffic to some of these outlets, subsequently cutting sales.
This crisis has been further compounded by the rise in food inflation. Nigeria’s food inflation in the last one year rose by 15 per cent, specifically from 24.82 per cent in May 2023 and 40.01 per cent in March 2024. The headline inflation also rose by 10 per cent from 22.41 per cent in May 2023 to 33.20 per cent in March 2024.
Currently, the Nigeria Bureau of Statistics (NBS) puts inflation as of August at 32.15 per cent, while food inflation as of July is 40.9 per cent. These crises have stopped Nigerians from being able to afford a decent meal.
According to the NBS, the minimum monthly cost of a healthy meal diet for an adult family of four persons has gone up by over 35 per cent in the first six months of the year. For instance, as of January 2024, it will cost an average family of four in Lagos N122,765, the figure rose to N184,971 by June.
In Rivers State, in January, it was N115,133 but rose to N174,814 by June. In the FCT, an average family of four can use N106,201 in January but must have N167,057 five months after. Enugu State, where the family can survive with N117,952 in January, the family needed N150,829 by June; Borno State, (January, N100,126 and June, N126, 530) and Kano State, (N77,892 in January and N111,079 in June).
The challenges in the country have further been compounded by foreign exchange fluctuations, which continued to hinder business growth. The dollar has edged the naira by about 120 per cent in the last one year. It currently hovers around N1,600/$.
Indeed, the economic crises have battered the eCommerce sub-sector, though surviving operators appeared to be managing it, the crisis remains very deep.
These crises have forced some players to either reduce operations or close shops in the last few years running into early 2024.
Players such as Gloo.ng; Efritin.com; Dealdey; Careers24; Cheki; OLX, Wakanow, Payporte, Kaymu.com.ng; eShop.com.ng have had to either cut down operations or completely stay out of business in the country, the struggling sub-sector is left to the fire powers of Jumia and Konga, both of whom have continued to streamline operations and strengthen their strategies to remain in the business.
Citing the E-commerce insights, 2023, the Nigerian Communications Commission (NCC) said Nigeria is the 52nd largest market for eCommerce with a predicted revenue of $2,684.6 million by 2024. It stressed that the sub-sector has been buoyed in the country because of a vibrant digital ecosystem with a rapidly growing population of Internet users and mobile subscribers.
As of 2021, NCC puts eCommerce market size in Nigeria at around $13 billion.
Nonetheless, the ecosystem has faced serious challenges in the last four years, but it reached its peak this year following a drop in disposable incomes, galloping inflation, forex instability and insecurity (which slows expansion).
For instance, Statista noted that eCommerce in Nigeria had been on the decline considerably since 2022. This means that online traffic to some of these eCommerce sites has gone down. Findings also showed that as of 2023, Nigerians had a very positive attitude towards online shopping with a high preference for clothing, shoes, bags and accessories, but that has considerably faded away in the last six months.
According to The Guardian checks, though prices of goods have indeed doubled and tripled in some, products on some platforms are still found to be cheaper than market prices.
Prices of most electronics items have gone up, owing to forex fluctuations, including refrigerators, television sets, air conditioners, fans, gas cookers, deep fryers, and home theater, among others.
Computers and accessories have also been on the high side. But there was a noticeable drop in the prices of clothing, shoes and accessories. Consumables that are edibles have equally seen an upward trajectory in prices.
The consequence of this challenge is that consumers are fast switching brands.
At a recent forum on consumer behaviour in Lagos, it was revealed that brand loyalty is now uncertain as almost seven in every 10 shoppers have switched brands in the past one year due to increased prices.
Indeed at the NielsenlQ breakfast Conference, themed: Growing around “The Big Squeeze” in Lagos, which was prompted by the current seismic shocks observed in the market both at a macro and micro level, Senior Manager, CMI East and West Africa, Tosin Onayemi, said 95 per cent of consumers have changed how they shop for their FMCG to manage expenses, with the majority of them focusing on essential goods, creating budgets, monitoring the overall cost of their selections and eliminating room for impulse buying.
According to him, 75 per cent of Nigerian consumers as opposed to 31 per cent in June 2023 said they are in a worse financial position this year compared to 34 per cent of global consumers. Of this number, He said 81 per cent attribute it to high cost of living, 64 per cent to increased fuel prices and 60 per cent to economic slowdown.
Managing Director of NielsenIQ (East and West Africa), Faith Wanderi, said businesses need to understand consumer behavior and the shifts that have occurred to make informed decisions on whether to change price strategy, brand extension, or focus on distribution targeted at consumers.
A former manager at Slot Nigeria told The Guardian that traffic for online goods has gone down by as much as 30 per cent. He revealed that since last year, most Nigerians have subscribed to ‘Easy Buy’, at least to buy a new phone, whose price is spread over six to eight months with a higher commission. He said those who cannot do that settle for fairly used devices.
Providing more insight on the eCommerce space in an interview with The Guardian, the Group Chief Operating Officer, (COO) of Konga, Dave Omoregie, admitted that the current economic challenges in Nigeria, marked by almost zero disposable income and severe inflation, have significantly impacted the eCommerce business, as they have in other industries.
Omoregie said the high inflation rate has led to a significant increase in the prices of products sold on the platform, reducing consumers’ purchasing power.
“Consequently, with less disposable income, people are cutting back on non-essential spending, which is not good for business. For instance, a 2hp Air Conditioning unit that used to sell for about N200,000 now goes for over N600,000, a dramatic increase, this is the same for other categories where we enjoy online patronage,” he stated.
Admitting that the sluggish economy has affected eCommerce growth, the Konga GCOO, said virtually every business in Nigeria today is struggling to grow at the same rate as foreign exchange, stressing that inflation in Nigeria has significantly impacted buying patterns, leading to very cautious spending behaviour for online consumers.
He, however, noted that though prices are up when compared with total cost, inconvenience and risk of transportation to the last mile, “it is cheaper to buy from Konga that delivers to the home and offices of shoppers as we are in full control with appropriate warranty.”
However, Omoregie said despite the challenges in the sub-sector, “we have been fortunate with our investors, who have faith in the business and believe we are in the most futuristic business with immense potential for growth and innovation.”
Despite the drop in online traffic and challenges, he said eCommerce is the business of the future and will continue to thrive and enjoy patronage.
According to him, the business is envisaged to continue to evolve with advancements in technology. He said currently, the focus is on ensuring that there is a sustainable business that can pay all its bills.
“We have continued to reengineer our processes around product procurement while ensuring that we keep our operational costs under control. We are also focusing on items that are truly affordable for customers based on insights we gather from the market,” he stated.
Regional Head of Public Relations & Communication, in Sub-Saharan Africa, Jumia, Robert Awodu, said due to the economic slowdown, there has been a shift in consumer behavior towards value-driven purchases and affordable brands.
Awodu said eCommerce offers some advantages during challenging times, stressing that Jumia allows for price comparison, access to deals and the convenience of shopping from home. He said this can be particularly beneficial for budget-conscious consumers.
According to him, while brick-and-mortar stores face limitations in foot traffic due to the sluggish economy, Jumia offers a distinct advantage. “Our online platform provides wider reach and accessibility for both consumers and sellers.
Further, while the broader retail sector may have experienced closures, Jumia has adapted its strategy to navigate the current economic landscape with a focus on affordability, financial inclusion and logistics optimisation, and upcountry expansion”
The Jumia chief, who said consumer spending pattern has changed, however, claimed that despite this challenge, the traffic remains high for Jumia, especially for products across different categories like home appliances, electronics, phones and accessories, health and beauty, and fashion.
Rather than going for high-cost goods, he said there has been continued interest in more affordable brands across these categories.
According to him, the economic situation has certainly impacted the overall growth rate across different industries in Nigeria, “however, it’s important to note that e-commerce is still a relatively young industry with significant potential for future expansion.”
Tackling fake products, which sometimes are major issues around online products, like other brands, the Jumia chief said the firm has a zero-tolerance policy for fake products, saying they deploy a multifaceted strategy to ensure product authenticity, including seller verification, product inspections, consumer reporting and collaboration with brands.
“We continuously refine our anti-counterfeiting measures to stay ahead of evolving tactics used by bad actors. Our goal is to provide a safe and trustworthy shopping experience for all Jumia customers,” he stated.
While the sub-sector confronts its challenges headlong in Nigeria, the Federal Government is planning regulations to guide the operations of e-commerce platforms in the country as well as cyber insurance for the users.
This plan is contained in the draft National Digital Economy and E-Governance Bill currently before the National Assembly.
According to Section 40 of the Bill, “the National Insurance Commission (NAICOM) in consultation with the regulatory agency shall develop and issue regulations including provisions on cyber insurance to improve security in electronic commerce.”
The Bill is sponsored by the Ministry of Communications, Innovation, and Digital Economy and has passed through first reading at the National Assembly.
In addition to the planned regulations, the Bill also sets guidelines for the operation of eCommerce platforms in Nigeria. Section 39 of the Bill specifically focuses on the information requirements for all eCommerce platforms.
A telecoms expert, Kehinde Aluko, noted that the problems e-commerce companies currently face were always hiding in plain sight and were likely missed by those caught up in the wave.
“E-commerce did not come up in Nigeria because there was an opportunity, it came up because it was hot globally,” he stated.
He explained that fundamentally, that was wrong because e-commerce ventures did not build their businesses in Nigeria based on social behavior.
He said essentially, with major urban cities across Africa home to pockets of the continent’s middle class, eCommerce companies might have a better chance to grow a big enough customer base in several markets rather than sticking to a single one.
“It’s like trying to run a mobile network in just one city. It’s not that you won’t get customers, it’s that the economics won’t work,” Aluko stated.
