Jumia outlines recovery strategies to deal with its $1.5 billion losses

African e-commerce group Jumia has outlined 5 strategic actions the company would take as it works to recoup its losses. Jumia has a $1.5 billion cumulative loss as of the third quarter of this year. As the business continues to invest in advertising, fulfillment, and technological costs, the losses have accumulated over time.

After the African e-commerce behemoth announced an Ebitda margin of $45.5 million with a guidance of $220 million for the year 2022, the losses persisted in the third quarter of 2022.

Pressure on internet companies to start producing profits has increased as inflation compels central banks worldwide to hike rates, particularly after years of low-interest rates that valued loss-making enterprises not on profits but on volume growth.

• Jumia is one of the firms facing pressure to produce profits, which recently led to the co-founders’ resignations.
• Since the beginning of the year, the company’s valuation has decreased by 60%, costing it its unicorn status.
• Jumia’s current value is a mere $457 million, which is still 2.5 times its projected sales of $178 million for 2021.
• Jumia needs to concentrate on lowering overhead costs and focus on viable business models in order to return to profitability.

The company has started taking steps targeted at recovering its profitability, including ending its free delivery service, Jumia Prime, developing a smaller organization, and reducing the increase in commission.

It identified five initiatives that are intended to minimize expenses across the board of its operations and concentrate on more lucrative areas of its business.

Enhanced business focus

The corporation claims that the first stage is to improve its business focus by doing fewer things in better ways. Jumia claims that by doing this, it would direct its resources into initiatives that clearly benefit buyers, sellers, and other members of the ecosystem, and it will stop working on initiatives that fall short of these standards.

The business said that it is ending Jumia Prime, a membership club that offered free delivery, in light of the first step. The business contends that it would be premature in the adoption curve to push such a product and would instead concentrate on improving the fundamentals of the customer value offered to increase repurchase rates.

In a similar vein, Jumia is reducing its first-party grocery e-commerce in regions where the category is still too small to support unit economics and pausing its logistics-as-a-service program “in areas where logistics infrastructure is not yet able to handle third-party volumes.”

READ MORE: Jumia hints at layoffs in order to reduce operating costs

Enhanced e-commerce

Jumia announced its second strategic step as a shift away from growth-subsidizing customer incentives and marketing investment in favor of improved e-commerce fundamentals that will drive sustainable growth. Instead, the business will strengthen the foundations of e-commerce to enhance the customer value proposition.

With this step, actions to be taken include mastering the fundamentals of e-commerce through selection, price, and convenience across core categories; concentrating on core categories like phones and consumer electronics, home appliances, fashion, and beauty; strengthening supplier relationships; and enhancing customer centricity and experience.

Cost discipline

Jumia claims that the third phase is to implement stricter cost discipline by making more calculated efforts to reduce expenses and boost efficiencies throughout the entire cost structure. In order to enforce this, the corporation will reduce the number of certain product categories (groceries in a few specific regions) and renegotiate delivery fees with the appropriate third-party logistics partners.

Jumia claims it would also prioritize its development roadmap on goods and services that bring concrete benefits to the platform, concentrate spending on the most pertinent marketing channels with the highest returns on investments, and cut employee costs through a leaner, simpler structure.

Monetization

As it moves away from monetization shortcuts that might negatively affect platform growth, such as excessive commission rate rises or price escalation for sellers’ services, Jumia will be establishing a balanced, diverse monetization model as part of the fourth stage.

According to the business, there won’t be any additional commission rises in the near future as it works to improve advertising through more powerful ad solutions in order to encourage sellers’ adoption of its ad solutions.

Focus on JumiaPay

Jumia claims it would now concentrate more on its fintech company, JumiaPay while reducing other sections of its business that it believed to be unprofitable.

The corporation stated specifically that it will be expanding this business in Nigeria and Egypt, both of which it had already secured licenses.

JumiaPay continues to be a top priority for us, and we’ll seek to make it an even more powerful tool for our eCommerce business by concentrating on a smaller but more specific set of essential goods and endeavors. With controlled marketing and consumer incentive spending, we will continue to drive on-platform payment penetration, the company said.

Source: Nairametrics.com