Africa’s $20 Billion E-Commerce Opportunity | Global Currents, BoF Professional

CAPE TOWN, South Africa — Buying a pair of shoes from Amina Muaddi has been described as “an Olympic sport.” Last year, the Parisian designer became so popular that even VIP customers were put on a waiting list. Not everyone was prepared to wait though.

South African influencer Sarah Langa was one of those who decided to go “shoe hunting” rather than join the queue, although she didn’t know then just how persistent she would have to be to eventually snag a pair of Muaddi’s PVC slingback pumps.

Months into the retail expedition, Langa wrote to her 400,000 Instagram followers to report that — at last, with help from a specialist personal shopper — she was able to source a pair in London. Well-off, well-connected African shoppers like Langa are better prepared than most for such epic shopping excursions. It comes down to experience. African luxury consumers have always had to use remote buying and find creative solutions to source the products they covet most.

Enlisting the assistance of personal shoppers, planning shopping trips abroad or weighing up the hefty import duties and taxes incurred when buying from international e-commerce platforms are some of the options available to shoppers like Langa, who is known for favouring Christian Dior, Saint Laurent and other luxury brands that are not easily accessible in South Africa.

“[With these] barriers in place, it becomes so difficult,” said Langa. “Even if you can afford those items you have to take in those additional costs like commission and customs. There’s nothing in place to make it easier for Africans to be luxury consumers from here [on the continent].”

Prior to Covid-19 restrictions on international travel, Langa would regularly take shopping trips abroad once a month or every other month. But the current uncertainty around travel continues to make shopping abroad a much less reliable and attractive option than before the pandemic.

“African consumers have demonstrated the same desire and love for fashion as elsewhere in the world — the only difference is accessibility,” said Lucilla Booyzen, director of South African Fashion Week.

If African luxury consumers were frustrated by the many pain points in their shopping experience before 2020, the new normal feels even more alienating. While it may be a blessing for local luxury brands on the continent like Rich Mnisi and Xyza Savanna who seem to have benefitted from the increased attention and wallet share from clients like Langa, it is bad news for global brands looking to tap into the continent’s growing $6 billion luxury market. Unless, of course, e-commerce players step in to offer viable solutions to bridge the gap between international brands and African consumers — but will they?

A Dynamic But Fragmented Ecosystem

When Jumia launched in Nigeria in 2012, the e-commerce platform promised consumers a “local and global reach” and urged consumers to trust them with all their shopping needs. The company has since been credited with legitimising e-commerce in a nation that is highly entrepreneurial but one whose economy is still over-reliant on oil and gas revenues.

Jumia was co-founded by Sacha Poignonnec, Jeremy Hodara, Tunde Kehinde and Raphael Kofi Afaedor with financial backing from Rocket Internet, a German investment firm founded by the Samwer brothers that had successfully backed South African fashion retailer Zando in the same year. Jumia’s arch-rival, Konga, was founded in 2012 by Nigerian entrepreneur Sim Shagaya, from a four-bedroom apartment in a Lagos suburb with just 20 employees.

The bad blood that existed between the two competing e-commerce pioneers in the early years is well-known in investment circles. In 2014, Konga reportedly made plans to take legal action against Rocket Internet for allegedly buying Konga domain names in countries like South Africa and Kenya to stifle Konga’s expansion beyond Nigeria. The consequence of these early competitive manoeuvres is that Konga remains a purely domestic Nigerian player while Jumia has grown far and wide across the African continent with country-optimised sites for Kenya, Côte d’Ivoire, South Africa, Ghana, Senegal, Uganda, Morocco, Algeria, Tunisia and Egypt.

High-capacity undersea fibre-optic cables are currently being planned by Facebook and Google to encircle the continent.

Jumia and Konga are not the only e-commerce players to come out of the continent. In South Africa, Woolworths, one of the country’s largest retailers, has been called an early adopter. More recently, companies like Takealot.com, which launched in South Africa in 2011, have been on the move. It is now one of the largest on the continent.

In April 2019, Jumia became the first African start-up to be listed on the New York Stock Exchange but that same year, the tide turned for the e-commerce giant as its stock value plummeted alongside a slew of fraud allegations and lawsuits that prompted Rocket Internet to sell its stake in April of this year.

Despite Jumia’s public mishaps and volatile share price, it is often credited with revolutionising e-commerce in Africa. As the world continues to mitigate the impacts of Covid-19, both on human lives and the economy, it has been used as a case study for the unintended e-commerce opportunity presented by the public health emergency — and the pitfalls that come with it.

In spite of the many serious barriers that persist for e-commerce players in sub-Saharan Africa, such as low internet penetration, high access costs and logistical challenges for shipment, advisors at Fitch Solutions predict that there will be a longer-term uptake of online shopping and other services beyond the initial boost that was prompted by the pandemic.

Meanwhile, high-capacity undersea fibre-optic cables currently being planned by Facebook and Google to encircle the continent should ultimately improve connectivity and bring down costs.

Prior to the pandemic, revenues from the overall African the e-commerce market were projected to reach $19.8 billion this year and achieve a compound annual growth rate (CAGR) of 17.1 percent over the next four years, according to data from Statista.

Covid-19 has reportedly prompted an increased uptake of digital payment options. A recent McKinsey report points to a significant migration from cash transactions to cashless or digital transactions influenced by physical distancing in major African economies. In July, DPO Group, a pan-African payment service provider based in Kenya with over 100,000 merchants across the continent was purchased by Network International, a global payment giant headquartered in Dubai for $288 million.

These broader digital developments will no doubt make shopping online more attractive on the continent, but the extent of any impact will be dependent upon the product category. While the online ambitions of e-commerce giants like Jumia, Konga and Takealot are clear, experts question whether these general merchandise e-tailers have the potential — or indeed the desire — to become serious go-to players for fashion brands.

Moving Luxury Online in Africa

Jumia is often called “the Amazon of Africa.” While this shorthand does have its merits – at least in as far as both firms are general merchandisers selling everything from computers and car tyres to jeans and earrings — it is a very blunt comparison, not least because of the massive gap in scale. When it comes to the positioning of fashion on these platforms, however, the comparison is more persuasive. Neither Amazon nor Jumia have been able to crack luxury fashion; both are purveyors of basic clothing at the value end of the price spectrum.

Some argue that Jumia has the potential to do in Africa what Alibaba does in China. The Chinese tech giant’s plans for its Tmall Global platform to host 40,000 international brands by 2021 is underway and so far, Luxury Pavillion, Tmall’s exclusive sub-platform has courted brands like Burberry, Cartier, Versace and Prada to launch online flagships or sell directly to Chinese customers via the site.

In Africa, however, platforms like Jumia are not yet moving in that direction and the overall accessibility of international luxury fashion is not improving fast enough either. This year, in fact, it will probably worsen due to Covid-19. Prada already closed its physical location in South Africa’s Sandton City Shopping Centre.

Some argue that Jumia has the potential to do in Africa what Alibaba does in China.

For luxury brands with a presence on the continent, moving online is an option that many are ready to embrace — but only under the right conditions.

“We have some expectations regarding [online] retailing,” said Vanessa Azar, head of L’Oréal Luxe West Africa. These include the quality of the platform’s image, consumers’ level of trust in the online platform, and whether the platform already has a history of selling luxury goods. For L’Oréal, neither Jumia nor Konga so far meet those expectations. The group’s main distributor in Nigeria is Essenza, a specialist physical and online luxury retailer of cosmetics, skincare products and fragrances that include L’Oréal brands like Armani and YSL as well as brands such as Gucci, Coach and Jimmy Choo.

Dedicated fashion e-tailers like Luminance in South Africa — which sells brands like Balenciaga, Comme des Garçons and Maison Margiela, are another option. However Luminance, which was founded by Khanyi Dhlomo and is now owned by Judy Dlamini, only delivers within South Africa and to the US and UK. Restricting delivery to the domestic market is also an issue at Cape Town-based e-tailer Superbalist, which sells premium fashion from brands like Emporio Armani and Tommy Hilfiger, and was acquired by Naspers-backed Takealot in 2014 before merging with Spree four years later.

What is currently missing from the African context, according to Isaac Kwaku Fokuo, a principal at Nairobi-based investment advisory firm Botho Emerging Markets Group, is an e-commerce ecosystem that cuts across the continent. Luminance, Superbalist and Essenza are examples of players that have learned how to navigate the online space but only within their respective countries. Experts have pointed to the potential benefits of the African Continental Free Trade Agreement, which hopes to boost intra-African trade to 50 percent by 2030, as an added incentive to sell across the continent.

In the meantime, however, the way African consumers shop for luxury remains convoluted, with consumers on the continent buying from an online store abroad and shipping it to an address in the United States or Europe to have a relative or friend deliver it back home to avoid the high tariffs incurred when shipping directly to African countries.

International players like Farfetch, which ships to 45 African countries for a nominal shipping fee, are still a rarity. Net-a-Porter did not respond to BoF’s requests for comment on their delivery network but, according to a drop-down menu on the site, the e-tailer delivers to fewer than 20 African mainland countries.

One way to overcome some of the obstacles and limitations presented by the market is to use intermediaries like Chris Folayan’s Mall for Africa site, which allows consumers on the continent to shop from stores like Nordstrom. Shoppers pay by loading money onto a web card on the Mall for Africa platform, while the firm deals with payments, taxes, and delivery. Currently, the site ships to Nigeria, Kenya, Ghana, and Rwanda. Still, the vision of a cross-continental fashion e-commerce platform is far from reality.

One Abidjan-based start-up, however, has come close to doing so — only in reverse. Inspired by Etsy, Moulaye Taboure built Afrikrea, a marketplace of designers from 40 African countries that sells everything from jewellery, paintings and clothing to buyers in Europe and the United States.

According to Taboure, Afrikrea yielded €2 million ($2.3 million) in sales in July 2018, two years after the company launched, and secured €1 million ($1.2 million) in investment from Saviu, a French venture capital fund.

One strength of Afrikrea, which was a 2019 finalist in Alibaba founder Jack Ma’s Africa Netpreneur Prize, is its reach. “What we’ve achieved is based on our biggest strength, which is our marketplace and the number of people in our community,” said Taboure, who serves as chief executive.

The Scale of Continental Distribution

If size and reach were the only indicators of the best distribution channel into the continent, Jumia would be the top contender. Currently, Jumia operates in more countries on the continent than any other of its kind, including the three largest economies: Nigeria, South Africa, and Egypt. And despite its rollercoaster financial year in 2019 and the suspension of operations in Rwanda, Tanzania and Cameroon, it is still in a league of its own.

“I think the sentiment on the ground is pretty much established that Jumia is still the major e-commerce brand on the continent, and if you want to guarantee a level of scale you would probably trust Jumia’s distribution better than any other player in the market,” said Laolu Samuel-Biyi, a partner at Hacked Capital, a venture capital and private equity firm in Lagos who worked for Jumia from 2012 to 2013.

According to Juliet Anammah, chairwoman of Jumia Nigeria, the question is not one of Jumia’s feasibility, but instead, whether it is interested in expanding into luxury fashion distribution.

Luminance, Superbalist and Essenza are examples of players that have learned how to navigate the online space but only within their respective countries.

“In terms of capability, we can set up anything. But the question is, at this point in time, is it a primary focus?,” asked Anammah. “Not really. Luxury is not so much of a primary focus.”

Anammah points to Jumia Mall, an online storefront for over 100 brands to list and sell their own products directly to consumers on the platform. However, many of the products on Jumia Mall are sold from local distributors in the country rather than directly from brands. The same is true for Konga, which is home to notable fashion brands like DKNY and Ralph Lauren, but sold via Lagos-based distributors like Sleeklook Clothing.

Anammah notes that Jumia’s customer base is made up of a wide array of consumers, but commodity buyers are at the top of the list. When it comes to the fashion category Jumia customers are often looking for deals, bargains and repeat purchase items.

“People want to buy standard clothing for their families,” said Anammah. “They want price, they want assortment, and they also want convenience. Especially convenience of delivery [so] this tends to favour more of the local manufacturer who is based locally or a distributor who is local but representing an international brand.”

Cautiously, Anammah cites the economic implications of Covid-19 as another deterrent for Jumia’s possible pivot into luxury fashion. Analysis from The World Bank estimates the pandemic could cost sub-Saharan Africa between $37 billion and $79 billion in terms of output losses for 2020.

“I think consumers in Africa will still be in recovery mode, trying to stretch their limited disposable income to be able to afford as many things as they can. They will be less brand-conscious, more price-sensitive,” said Anammah.

Jumia made clear its focus on the value end of the spectrum when it leveraged the infrastructure of its South African fashion e-tailer Zando to deliver essential goods during the height of the Covid-19 pandemic. The company ended the second quarter of this year with 6.8 million active consumers (a year-over-year increase of 8 percent) and GMV of €228 million ($269 million), reflecting a year-over-year decrease of 13 percent compared to the same period last year.

While the e-commerce giant sees its unwillingness to engage with luxury as a reflection of the times and a demographic reality of its core customer, some market experts say it is a missed opportunity. Others believe that smaller, more nimble African e-commerce players are better suited to align with luxury brands — but will any step forward?

All Brands Under One Digital Roof

Fashion industry leaders on the continent point to the entrepreneurial flair of boutique e-commerce sites like Dar es Salaam-based Industrie Africa, Johannesburg-based Kisua, and The Folklore. These, they say, are businesses that international luxury brands should be closely watching. Although many of these sites are focused on selling African luxury brands to consumers abroad, consumers say the reverse is also feasible.

“There’s space for these homegrown [e-commerce] brands to aggregate local luxury brands but also tap into the international market,” said Akinyi Ochieng, marketing executive at Nova Credit, a cross-border credit reporting agency.

But Amira Rasool, founder of the New York-based e-commerce site The Folklore, cautions brands that selling directly to African consumers cannot remain a top-down transaction.

“I think it’s important that [international brands] have representatives actually on the continent and that they’re building local teams. I don’t advise people to move their people from Europe to Africa. I advise that you connect with people [already on the continent].”

For Nisha Kanabar, founder and chief executive of Industrie Africa, e-commerce was not the platform’s first iteration. Initially launched in 2018 as a database of designers on the continent, it wasn’t until May 2020 when Kanabar, a native of Tanzania, pivoted to e-commerce with 30 designers from 10 African countries.

“What we’re trying to control is the customer service aspect, namely communication with the customer. We’re making that exchange as smooth as possible. And, you know, making sure that we have both the customer as well as the designer in mind.” said Kanabar, who espouses a model that is light on inventory.

What we’re trying to control is the customer service aspect…We’re making that exchange as smooth as possible.

According to Hanneli Rupert, a South Africa-based retailer and founder of luxury leather brand Okapi, consumers are now demanding more from the designer curation experience such as ethical sourcing credentials. Using Industrie Africa as an example, Rupert notes that, “it is implied that the brands on there are not only African but [that] there are different additional filters on how the product is produced and what it stands for.”

Another draw for local boutique e-commerce players is that they tend to already have the pulse of the African luxury consumer. Omoyemi Akerele, managing director of Style House Files and founder of Lagos Fashion Week notes that as a shopper, the potential to have both local and international luxury brands on the same online platform is appealing to African consumers who enthusiastically shop both categories.

“I want to walk into a space where everything I like is under one roof,” said Akerele, even if that roof is digital.

Ayotunde Rufai, chief executive of the e-tailer Jendaya is attempting to build that roof. The platform, which is set to launch later this year, has positioned itself as a next-generation luxury experience where Rufai claims that shoppers on the continent will be able to shop international and local brands like Dior, Orange Culture, Les Petit Joueurs, and Rich Mnisi side-by-side. The site will launch to 400 select shoppers in October and, on the continent, goods will ship to both Nigeria and Ghana to start.

“What we’re curating is a trustworthy, convenient and exceptional shopping experience for the continental African luxury buyer,” said Rufai.

Almost a decade earlier, Honey Ogundeyi had a similar vision in mind. Based in Lagos, the tech entrepreneur launched Fashpa in 2013, on the heels of Jumia and Konga. The brand was focused on making local and international high street brands like River Island and Asos available to consumers in Nigeria through its e-commerce platform. In 2018, Fashpa’s success led to Ogundeyi being selected as part of the Farfetch’s Dream Assembly accelerator for fashion start-ups but by December 2019, Ogundeyi decided to close Fashpa’s operations.

Her exit from the e-commerce space is a potent reminder to today’s entrepreneurs that the sector is highly competitive, complex and full of unique challenges on the continent. But despite her own departure, Ogundeyi still believes in the opportunity for a hybrid fashion e-tailer stocking both African and international brands.

For the start-up that eventually succeeds in this race, what should be their top priority? Getting their team mix just right, she says. And of course “getting access to the right sort of funders and investors [who truly] understand the opportunity that Africa presents.”

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