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The transformative potential of marketplaces is being facilitated by digital intermediaries on the continent.
By The IA Team
A marketplace is a location—physical or virtual—that facilitates the exchange of goods between buyers and sellers. They are widespread throughout Africa and have great potential for reaching a new generation of consumers and creating opportunities for small businesses. Additionally, marketplaces exist outside of retail settings, and they support supplying in-demand goods to the consumers who influence market trends.
Marketplaces have been evolving at an incredible rate. According to The Business of Fashion, the pandemic refocused attention on the marketplace due to government-imposed restrictions that confined many to their homes. The increased focus on marketplaces provided visibility for businesses and other critical avenues of distribution without the hassles of conventional wholesale. Furthermore, marketplaces stand to be an increasingly vital partner to African fashion companies across the entire value chain thanks to developments in retail media networks, narrative abilities, and operational efficiency that deliver excellent service. Here, we look at the impact of these marketplaces and how to seize lucrative prospects in emerging markets.
Marketplaces for fashion are a sales channel for brands and retailers to sell their products online via prominent retailers. A central location (traffic) offers a place to gather and serve commercial needs (community) and provide services to merchants like access to credit and security (customer service, payments). Neatly organized into areas of need (discoverability), merchants are often specialists who could speak knowledgeably about their items (product evaluation).
Over the last several years, marketplaces have been innovating rapidly, rolling out new features and entirely new business lines in response to shifting consumer preferences and competition, says New York-based creative growth acceleration company Huge in their Future of Marketplaces research forecast on the evolution of the marketplace model. McKinsey & Company's Lions go digital: The Internet's transformative potential in Africa Report projects that by 2025, online shopping will account for 10% of retail sales (valued at $75 Billion) as more Africans gain access to the Internet. In addition, the growing enthusiasm amongst Africans about e-commerce has resulted in the accelerated use of online shopping malls managed by professional retailers, open to sellers from more than one country and across several African nations. Similarly, BusinessTech states that the shift to e-commerce has increased the competitiveness of smaller, independent retailers, who recognize the potential to expand their client base beyond their immediate regional presence.
What distinguishes leading regional mass consumer goods marketplaces like Jumia (Nigeria)—often called "The Amazon of Africa"—Takealot (South Africa), Kilimall (Kenya), and Konga (Nigeria) is their ability to leverage digital innovation in their respective markets. Despite this innovation, African marketplaces can be affected negatively by the following factors:
94% of all online commerce in Africa is driven by ten nations, with 78% of all market traffic accounted for coming from South Africa, Egypt, Nigeria, and Algeria. As of 2019, 631 African online markets were responsible for 1,900 websites across 58 nations and territories. In that year, these marketplaces received around 2.2 billion site visits. Despite the fact that these figures might seem high, they are relatively small by global standards. For instance, according to estimates, in 2019, Amazon.com received 26.73 billion visitors, compared to 10.47 billion for eBay.com and 6.66 billion for AliExpress.com.
According to the International Trade Centre’s (ITC) report, Business and policy insights: Mapping e-marketplaces in Africa, as of 2017, only 30% of Africans had internet connectivity, despite e-commerce requiring it. The countries with widespread internet access were Tunisia (64%), Morocco (62%), Gabon (62%), South Africa (56%), and Djibouti (56%). In addition, 60% of the population of African nations live in rural areas. These places typically have inadequate internet connectivity and are far from distribution centers, meaning delivery services for items are either insufficient, nonexistent, or expensive. All of this results in significant barriers for marketplaces.
African people typically use mobile devices rather than fixed lines. According to data gathered by Statcounter Global Stats in 2019, 60% of internet access devices in Africa are mobile, 38% are desktop, and 2% are tablets. Even in nations with limited internet access, there is significant mobile usage. For example, in Kenya, 77% of people use mobile devices despite only 18% of the population having access to the Internet. The countries with the most significant rates of mobile device use include South Africa, Tanzania, Nigeria, Guinea, and Ethiopia.
For marketplaces to succeed, they must have easy access to banks, credit cards, and mobile money. These payment methods are necessary for online markets to use click-and-collect at pickup locations or cash-on-delivery, which can be unreliable and expensive to set up and maintain. For customers to adopt, e-commerce must be relatively simple and convenient. The general public must trust both the delivery services and the payment methods. According to research, trust levels fall in lower-income countries and rise as wealth levels rise, which means that establishing trust in online interactions and establishing reliable payment methods for e-commerce is more difficult in poorer economies. Collectively, the consumer banking habits of African countries still lag behind those of the rest of the world, with nearly half of the adult population preferring to pay in cash rather than having a formal bank account
Only 11% of African countries have populations where more than 50% are cardholders. Gabon (62%), Cabo Verde (57%), Djibouti (56%), and Mauritius (56%) have the highest rates of credit card ownership but less than 5% of the populace in 60% of African nations possess a credit card. In many parts of Africa, mobile money is replacing cash as a preferred payment method. Kenya has the highest percentage of users (73%), followed by Uganda (51%), Zimbabwe (49%), Gabon (44%), and Namibia (43%), all of which have mobile money accounts. Ethiopia and Morocco have the lowest adoption rates for mobile money, followed by Burundi (1%), Egypt, and Tunisia (2% each). Studies show that popular mobile money alternatives or governmental prohibitions are to blame for this low adoption rate. WeChat Pay and Alipay are already used as payment options in East Africa, particularly in Kenya, Uganda, Tanzania, and Rwanda, in partnership with regional financial services company Equity Bank.
The cost of using International logistics companies such as DHL is high,creating a barrier to adoption for local companies. Another factor that comes into play includes unpredictable customs policies, another barrier to international and intra-Africa e-commerce. The lack of structured national address systems in certain parts of Africa, combined with poor road infrastructure, increases the complexity of deliveries, making convenient delivery of products to customers difficult. Consequently, companies have had to rely on especially descriptive addresses and landmarks provided by customers during the initial stages of the online purchase process. It also requires constant contact between clients and delivery persons to receive further directions while en route.
However, as more deliveries are made, the mapping coverage improves, and delivery routes are optimized. Jumia Logistics has responded by using machine learning to map out addresses using coordinates and routes logged on deliveries. Moreover, unconventional modes of transport are being used for last-mile delivery. Jumia Logistics, for instance, uses motorbikes in addition to other vehicles, which can inspire competitors in various industries to investigate cutting-edge and innovative ways to distribute their goods.
Despite the difficulties, it is evident that millions of people in Africa will have access to knowledge and possibilities previously out of reach. In a dynamic ecosystem that spans the continent and beyond, they will have a more significant say in local communities and contribute to the international flow of commodities and ideas.
The African Continental Free Trade Area (AfCFTA), the largest free trade area in the world, unites the 55 nations that make up the African Union (AU) and eight Regional Economic Communities RECs to form a single market for the continent. The objective of AfCFTA is to facilitate the unrestricted movement of products and services throughout the continent and strengthen Africa's global trading power position. Additionally, governments, technology providers, investors, and other players in the digital infrastructure of Africa must work together to make enhanced internet connection a priority and improve commercial infrastructure and financial institutions in order for African fashion to advance. With AfCFTA's mandate to eliminate trade restrictions and foster intra-African trade, business executives must re-evaluate the role of the marketplace in their commercial strategies and rethink how they view the competitive landscape. The reach of the local industry can change with adequate market engagement, and the AfCFTA will help develop regional value chains on the continent that enable investment and job creation.
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