Dipo Olowookere
By United Capital Research
Every business/industry is expected to go through four stages of development, from the first product entry to its eventual decline (Start-up, Growth, Maturity and Decline stages). Each stage has its own unique characteristic.
The Nigerian ecommerce industry is currently perceived to be at the growth stage, having seen a number of investments in the space in the past.
However, the Nigerian online retailing business, though filled with potential, continues to struggle to break-even.
Recent data from the Nigerian Communication Commission (NCC) showed a 9.8%y/y rise in GSM internet subscription to 100.2mn as at Jan-18.
Yet, the growth in the number of internet subscribers seems not to be translating into profit for Nigeria’s online retailers.
One key driver of the low profitability is the high operating cost that has outpaced the growth in revenue associated with new subscribers coming online.
In our view, revenue growth is constrained by “trust” concern on the part of the shoppers, while logistics bottlenecks continue to add to cost pressures for e-commerce players, making profitability a mirage in many instances.
This has led to the recent exodus of some of the sector’s key players.
We believe the industry can break past the growth stage if operating environment becomes more enabling, and stiffer regulations are directed at addressing the trust deficiency on the part of the consumers.
