Jumia Technologies, known as the “Amazon of Africa” for its dominance in the African e-commerce market, reported a loss of $23.3 million in the second quarter of 2023, down from $30.9 million in the same quarter of the previous year. Indeed, the company’s revenue also declined by 15% to $198.4 million.
Jumia attributed the losses to a number of factors, including increased competition, rising inflation, and currency devaluations in some of its key markets. The company also said that it had invested heavily in marketing and sales in order to grow its customer base.
The e-commerce market in Africa is becoming increasingly competitive, with new players entering the market all the time. This has put pressure on Jumia's margins. Inflation has been on the rise in many African countries, which has made it more expensive for consumers to buy goods and services. This has hurt Jumia’s sales.
Moreover, the value of the currencies of some of Jumia's key markets has been depreciating, which has made it more expensive for the company to import goods and services.
Jumia has been investing heavily in marketing and sales in order to grow its customer base. This has helped the company to increase its number of active customers, but it has also led to higher costs. And the cost of fulfillment also took a toll on Jumia. Jumia has been facing rising costs for fulfillment, such as delivery and warehousing. This has also contributed to the company's losses.
In addition to these factors, Jumia also cited a one-time impairment charge of $10.5 million in its second quarter results. This charge was related to the company's investment in its logistics business.
In order to reduce its losses, Jumia said that it would be cutting costs across the board. The company plans to reduce its sales and advertising expenses by 74%, its fulfillment expenses by 50%, and its general and administrative expenses by a third. Jumia also said that it would be laying off employees and closing some of its operations in less profitable markets.
Jumia's CEO, Francis Dufay, said that the company was "navigating challenging macro conditions with discipline and focus." He said that Jumia was committed to reducing its losses and becoming profitable in the long term.
However, cutting cost alone won’t be enough for Jumia to bounce back and generate positive returns in the subsequent quarters. First, Jumia is facing structural challenges. This is because the e-commerce market in Africa is still in its early stages of development, and there are a number of challenges that Jumia is facing, such as a lack of infrastructure and a low level of internet penetration. Cutting costs will not address these challenges.
Second, Jumia needs to invest in growth. In order to become profitable, Jumia needs to grow its business. This means investing in marketing and sales, expanding into new markets, and improving its product offering. Cutting costs will make it more difficult for Jumia to invest in growth.
Third, cutting costs could even have negative consequences because cutting costs can lead to layoffs, which can hurt morale and productivity. It can also lead to a decrease in the quality of service, which can alienate customers.
The truth of the matter is that Jumia needs to take a more holistic approach to its turnaround plan. This means cutting costs where possible, but also investing in growth and addressing the structural challenges that it faces.