Jumia will cut products and overheads as new management chases profits

Last Monday, Jumia co-founders Sacha Poignonnec and Jeremy Hodara resigned from their roles as co-CEOs, just ten days before the company’s Q3 2022 financial report. The end of their tenure therefore marks the first time that a new face – Francis Dufay, the former head of Jumia Côte d’Ivoire and now acting chief CEO of Jumia – led the investor briefing.

During the call, Dufay was quick to highlight why the e-commerce giant’s supervisory board decided to appoint new management, stressing that Jumia’s approach to turning a profit after half a decade of consecutive losses on the NYSE (such as Africa the first publicly traded company) required a more conscious implementation and a return to the basic fundamentals of e-commerce.

on Jumia third quarter report showed a glimpse of what this new approach could offer. For example, the company’s operating loss and adjusted EBITDA loss both fell by double digits year over year. Its operating loss decreased 33% from $64 million to $43.2 million, while adjusted EBITDA losses decreased 13% from $52.5 million to $45.5 million; their lowest level in six quarters.

This reduction in losses was driven by a significant drop in marketing expenses in the form of sales and advertising expenses, which decreased 31.5% from $24 million to $16.4 million over the prior year, and an improved monetization plan that saw an increase in gross profit of 29.2% within the same period.

“We want to significantly improve the economics of our units and create the right foundations for long-term growth. In the past, we saw a lot of growth as a function of marketing and promotional events, which then, as a consequence, changed our economy,” Dufey told TechCrunch in an interview discussing Jumia’s new strategy. “This is not the way we want to see the future. And we believe that we have many success stories in our countries that show that we can grow and improve the economy at the same time.”

Dufay said she wants Jumia to become a more attractive platform for its third-party vendors to sell on. One of the ways Jumia plans to achieve this is by moving away from the monetization shortcuts it used in the past when it increased commissions for seller services (for example, charging 20-25% for fashion items and 5-10% for electronic items). Instead, the company intends to generate new revenue through value additions such as advertising solutions and building a stronger local merchandising offering.

The latter, Dufay adds, is particularly important as Jumia grapples with the devaluation of the local currency in its main markets (Nigeria, Egypt and Ivory Coast), which is affecting its e-commerce business. According to the Q3 2022 report, the Nigerian naira, Egyptian lira and West African CFA depreciated by 5%, 14% and 13% respectively against the dollar in the nine-month period ending September 30, 2022, compared to the same period in 2021 Many companies around the world are dealing with the impact of currency fluctuations. Jumia is a good example of the problem, with revenue of $50.5 million for Q3 2022, a figure that would have been $56.6 million if global currencies had been stable over the past year.

“The volatility of foreign currencies has a big impact on us. Most importantly, it affects market supply and makes it difficult for all retailers, including Jumia, to get the right delivery at the right time to sell to customers,” Dufey said. “In several countries, for example, we have seen governments take action to protect their currencies, which often includes imposing very large restrictions on customs [which] inevitably affects the type of offering we manage to bring to the website. But we believe we’re putting together the right plan to mitigate that, one of which is very focused on capturing local supply from distributors and suppliers, which is something that’s very critical in all markets. Good results in this part will help us mitigate the current macroeconomic situation.”

As Jumia restructures its local supply chain, it is scaling back some of its offerings that have not made a good return on investment in the eleven markets. Dufay added, “These are projects that we don’t feel add the right value to our ecosystem, to our customers and suppliers, and to the platform.” However, some of these product lines will continue to operate in multiple markets. These include Jumia’s logistics-as-a-service platform, which launched a few quarters ago and at one point moved 3.5 million packages (still active in Nigeria, Côte d’Ivoire and Morocco), and First Party’s grocery e-commerce ( active in Nigeria and Ivory Coast).

Jumia Prime, on the other hand, has been paused indefinitely. Launched in 2019, Jumia Prime was introduced as a subscription-based delivery service providing customers with free delivery on its marketplace. The product, modeled after Amazon Prime, was one of Jumia’s main user acquisition strategies, and despite having more than 3.1 million quarterly active customers on the platform (Q3 2022), it appears that this traction and the volume of business brought from Prime compared to the level of investment received, fell short of the company’s goals.

According to Jumia, it is discontinuing Jumia Prime because “it was too early in the adoption curve to push such a product” and it eases the team in the broader effort to reduce the company’s general and administrative (G&A) expenses.

Jumia’s general and administrative expenses, excluding stock-based compensation, reached $28.3 million in the third quarter of 2022, up 12% year-on-year. Although the company froze hiring earlier this year, it intends to cut more personnel costs in several areas as well, Dufey said. The number one corporate priority is to implement changes at the Dubai office, where most of the former management team, including the former co-CEOs, were based. Several contracts have already been terminated (Dufey did not disclose how many), while those who still have roles at the company are moving to various African offices as Jumia tries to spread its leadership across the continent. Jumia is also preparing to make significant changes and reduce the size of staff on a case-by-case basis in each of its markets by the end of the year.

“We’re trying to be very clear about the fact that we’re also making a lot of deliberate savings across the base. We want to build a very lean organization and, especially in this macro environment, we have to be very cautious about the costs we take on,” Dufey said. “So one obvious point we need to work on is our G&A expense structure. We want to have the right-sized team for the market potential and be as efficient as possible in all locations.”

Meanwhile, Jumia’s plan to accelerate its platform order growth (up 11% year-on-year in the third quarter) and revenue (up 18.4% over the same time period) is based on its ability to expand its product mix in four key categories. Dufay lists them as consumer electronics, fashion and beauty, home appliances and food delivery, the platform’s fastest-growing category in terms of order terms and GMV, whose growth is supported by JumiaPay, the company’s fintech arm, which is currently focused on on Nigeria and Egypt.

On the other hand, Jumia has not changed its expectations to end the year with an adjusted EBITDA loss of no more than $220 million. The company ended the third quarter of this year with liquid position of $284.7 million, of which $104.3 million is in cash and cash equivalents.

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