Amazon, an ECommerce company that is the 3rd largest company in the world worth 1.43 trillion USD is apparently coming to Nigeria in April 2023; 11 years after the largest ECommerce company in Nigeria Jumia began unprofitable operations. Jumia, although listed on the New York Stock Exchange and worth 696 million USD is still unprofitable in Nigeria.
In June 2022, Business Insider obtained leaked documents that showed Amazon has plans to begin full scale operations in Nigeria and South Africa (amongst other European and Latin American countries). Amazon will begin by providing fulfillment services whereby merchants send their products to Amazon fulfillment centers and when a customer makes a purchase on the Amazon ECommerce platform, Amazon will pack and ship the product.
Amazon will also provide customer service and will handle any returns or exchanges – the most important value Amazon currently offers its customers. In Nigeria ECommerce retail makes up a mere 7% of all retail purchases (as of 2020), with 78 million Nigerians being users of ECommerce and the sector making about 12 billion USD revenue from online purchases in 2020. ECommerce is slated to grow to a revenue of 75 billion USD by 2025, driven mainly by growing internet users (currently at 84 million Nigerians), growing smartphone users (currently at between 25-40 million) and a generally vast digital audience with a need for speed and convenience.
However, companies like Jumia, Konga, Jiji, Ebeosi, Kushap and other ECommerce platforms are finding it difficult to break through in this ECommerce space and make a profit. The relatively small total addressable market, profit margins and challenges with logistics and delivery make the ECommerce space not as lucrative. So why is Amazon taking this chance?
For one, when Jumia and Konga came on the scene internet penetration was lower, the number of banked Nigerians was also lower and the logistics sector was underdeveloped. With Google maps and logistic tech companies, delivery has become a bit more seamless, with banks and fintech companies there are more payment options available and with advances in telecommunication infrastructure, internet penetration has increased.
Amazon is looking to increase their sales and create demand outside of North America where they are currently experiencing some challenges and a slow down.
It seems like with Amazon’s operations in Nigeria they are in for the long game. It took Amazon 17 years to become profitable in the United States and they might be adopting this approach. “…It’s not about becoming profitable, but rather generating revenue that can be used for reinvestment, as well as gaining Amazon Prime members – who, as we’ll see, are a crucial piece of the puzzle.” – Buy Box Experts
Amazon can support infrastruction development and unification and bring more opportunities to the informal market in Nigeria at scale.
This article was provided by Versa research.