Business
Soaring delivery costs force shoppers to abandon E-commerce
By AYOOLA OLAOLUWA
E-commerce firms operating in the country are reeling from the negative effects of fuel subsidy removal, as online shoppers embrace physical stores and markets, among other cost saving measures to avoid high cost of goods deliveries, Business Hallmark can report.
According to available records, E-commerce firms, which largely rely on huge volume of orders to recoup their operating costs, lost about 40 per cent of their markets in June 2023, as Nigerian badly hit by hard times continue resort to austerity measures in order to stay afloat.
It would be recalled that President Bola Tinubu had in his inaugural speech on May 29th, 2023, announced the removal of fuel subsidy.
As a result of the announcement and subsequent implementation of the fuel subsidy withdrawal policy, prices of petrol almost tripled to N550 from its old price of N185 to N195.
Expectedly, transportation costs soared as drivers and delivery companies adjusted their fares to the new price regime.
The latest industry figures obtained by BH ranked Nigeria as the 38th largest market for E-commerce in the world with revenue of US$7.6 billion at the end of December 2021. The 2022 figure is still being expected.
Using the growth trend of the last three years to make projections, a research agency, Statista, had predicted that the nation’s E-commerce market will hit $9.02billion by 2023 with an annual growth rate of 11.74 percent.
The research firm went further by projecting the number of users in the E-commerce market to be 143.9m users by 2027, while user penetration will be 45.6 percent in 2023 and 58.7 percent by 2027.
However, the reverse seems to be the case, as the E-commerce market is presently facing economic headwinds due to the effects of the recent fuel subsidy removal which continues to bite harder and more Nigerians continued to fall into poverty.
The sharp drop in volumes of sales, multiple sources in the industry told BH, was as a result of buyers reluctance to absorb the huge delivery cost of goods purchased from their platforms.
BH investigation revealed that the cost of delivering goods purchased from E-commerce firms to buyers given addresses had more than doubled, and in some cases even tripled.
For instance, in January 2023, four full months before the removal of fuel subsidy, Nigeria’s two leading E-commerce firms, Jumia and Konga, were charging between N400 to N1,800 on each good delivered to customers around Ogba, Fagba and Iju axis in the Ifako-Ijaiye Local Government Area (LGA). The cost of delivery varies according to the sizes of goods to be delivered and distance.
However, since the new fuel regime came into being, the cost of delivery, it was observed, has substantially gone up.
According to shoppers in the mentioned areas, aww who spoke to our correspondent on the development, they now pay between N900 and N2,800 as cost of delivery.
An habitual online buyer, who resides in Olaniyi, New Oko-Oba area of Lagos, Sumbo Olubiyi, told BH that she was forced to reconsider her preference for online shopping after noticing a steep rise in delivery cost.
“On Tuesday, July 4th, I ordered several items, including an electric kettle, kitchen apron, laptop bag and a sandal from Jumia.
“The order was proceeding well until I got to the ‘Add to cart’ section. I was shocked when I saw that my total payout had risen to N39,250 from the initial cost of the four product put at N32,700.
“When I calculated it, I found out that the sum of N6,500 was charged for the delivery of the goods. Paying the fees would have defeated my aim of getting the products at a bargain.
“The costs of the products in the open market, added together, was around N37,000. And I can get it in my neighbourhood with no added cost.
“So, I was left with two options, to either abort the orders and go to the neighbourhood market, or opt for the ‘pick up’ option.
“When I checked the cost of the pick up option at their Ikeja centre, it amounted to only N1,800 only, about N450 on each product.
“I didn’t hesitate before clicking on the ‘pick up’ option as my office is situated at Maryland and I pass through Ikeja almost every day.
“At the end of the day, I picked up the orders on my way home from the office and ended up paying only N1,800 (cost of bringing my orders to the pick up point).
“Also, I now compare prices before making online purchases and will surely pick the ones that are most market friendly”, Olubiyi declared.
Another online shopper, who demanded to be identified simply as Stella, said she was shocked when she was about to conclude an order on the site of a popular E-commerce giant and saw the wide difference in the cost of the goods and the added cost of delivery.
“My son told me on Sunday, July 2nd, that he would be taking his Fine Arts examination on Tuesday and would be needing a set of brushes and a packet of crayons.
“I replied him okay and proceeded to the site of an online shop. While the costs of the two items totaled N900, I will need another N1,600 to ship them to my residence.
“I called the customer desk of the company to complain, particularly on why the two orders should be delivered separately. I advised that the orders should be combined and delivered at once to bring down the cost of shipping.
“The agent on the line, however, informed me that the two orders were from two different vendors, who were going to separately deliver them.
“To me, the transaction does not make sense. How will I purchase a good for N900 and then use N1,600 to ship it? I had to terminate the order and stopped over at a bookshop day on my way from work to purchase the items for my son’s examination the next day”, she said.
Many Nigerians, who spoke to BH on the development confirmed that they had suspended shopping for their much needed products online until the situation improves.
“Before the hike in delivery charges, I used to order goods, including food and pastries online, at least, once every a week.
“However, I have stopped the unprofitable habit. We now itemised our needs in the family before visiting wholesale shops and markets to pick them up at once in order to safe transport cost”.
In order to verify the shoppers claims, our correspondent visited the site of a leading E-commerce company to purchase two items, a Mouthpiece and ‘Reed’, for his son’s saxophone.
While the cost of the two items, Mouthpiece N5,000 and Reed N2,000 totaled N7,000, the cost of shipping amounted to N2,300, pushing the total cost to N9,300.
Our correspondent also noticed that the two ordered items would be sourced for and delivered by two different vendors registered with the E-commerce firm. This arrangement, it was observed, doubled the cost of delivery had they are delivered together.
BH checks further revealed that the method of allowing each vendor/supplier to deliver piecemeal to buyers, irrespective of how many products they are ordering, had largely contributed to the high cost of delivery.
For instance, a buyer ordering eight products from the same online shop will likely pay delivery cost eight times, as the items are normally delivered separately by accredited suppliers.
Absolving vendors of blame, a supplier with Jumia Nigeria, Tomisin Johnson (not real names), claimed business had gone south since the present administration removed fuel subsidy in May.
According to him, before the removal of subsidy, he used to fill his Toyota Camry sedan with 70 litres worth of fuel costing about N14,000.
“However, I now pay about N40,000 for the same quantity of fuel. While the prices of the products we sourced directly from OEM largely (Original Equipment Manufacturers) remained the same, the cost of delivering them to customers has multiplied”, Johnson explained.
The development, meanwhile, is currently threatening the profitability of E-commerce firms as sales have dropped significantly in the last one and half months.
A sales supervisor at Konga, who did not want his identity revealed because he did not have the permission to speak, lamented that his company had experienced huge drop in sales as Nigerians grapple with the harsh economic realities.
“Before now (subsidy removal), online shopping had struggled as the income of more Nigerian middle-class families gets wiped out by galloping inflation.
“The situation has been worsened by the high cost of haulage brought about by fuel subsidy removal to the extent that the volume of sales has continued to crash.
“In June, orders through our platform fell by about 38.9% and is expected to crash further by the time the figures for July are released in August.
“E-commerce business, like the fast food business, is more of a middle-class indulgence. It blossoms during economic booms and suffers anytime there is a downturn. Average Nigerians will rather trek two to three kilometres to get just N50 bargain on a product.
“Our hope and prayers is that the situation will not last long and that Nigeria’s economy will soon be back on the path of growth”, the Konga representative prayed.
