Jumia, the Rocket Internet eCommerce group has announced ‘Jumia Local’, a new offering where merchants sell exclusively Nigerian made product.
Jumia is going ‘local’ and this time around, the company really means it big.
On the surface, some would perceive this is a move to safe the company from making further losses and prevents its business from melting away in the face of harsh economic condition and worst Forex drought in the history of Nigeria.
Jumia Local is also an opportunity to further accentuate its merchant-based strategy. In its recently result, Rocket Internet, the parent company of Jumia reported that the company made a net loss of EUR35.4 million in its entire African operation. Rocket Internet had attributed the huge to the change of business model from inventory to merchant system.
This means that if Jumia wants to really go Local by creating a dedicated service line for locally-made products might further impacts its bottom-line in the following quarters ahead.
Jumia has not really giving indepth details about Local. On its dedicated sub domain- ‘local.jumia.com. All the register links for merchant are currently inactive. As reported by people with the knowledge of the matter, Jumia will be requiring all merchant to sell exclusively with Jumia for the first six month. The company also promised them zero percent commission and free promotion through Jumia marketing channels.
The company is doing this on the ‘pretext’ of supporting the local economy. However, Jumia might be playing a game of chess with its competitors and would be merchants. This is because Jumia needs to make money to break even in the best possible time.
At the end of the day, Jumia might just be replicating what it and other eCommerce companies are already doing. This is because it already has merchants who sell on its site whether their products are Local or not. The move to start Local might be an approach to undercut competition by signing merchants exclusivity and blocking out competition.
Promising merchants ‘free’ services on its platform might be counter-productive. If Jumia Local actually has an intention to charge them for ‘premium’ services, there is the risk of resentment from merchants. This might end giving Jumia’s competition an opportunity to propose the same offering thereby making Jumia’s proposition free for all.
The eCommerce sector had tried series of ‘free’ value propositions that ended up becoming a problem. First is ‘free delivery’. This proposition was not well though-out and ended up becoming a bad idea. The most popular one is ‘pay on delivery‘. After pay on delivery became unsustainable, eCommerce companies are now scrambling to create their payment solutions to reduce their cash handling and discourage pay on delivery.
Jumia is not really learning from series of systemic mistake. For a company having huge debts in its books, Jumia Local is a good idea but the execution might end up working against the company.
Only time will tell!