#BounceExclusive: 'Nigeria’s E-Commerce Is Cursed By Cash-On-Delivery'
Lawrence was a vendor on one of Nigeria’s largest online marketplaces.
Immediately after he completed registration, he started getting orders.
Expectation was high. He was imagining how much he could rake in overnight by selling items online to millions of prospective customers across Nigeria.
But then things changed rather quickly, dramatically and sadly.
“I would ship out items from Monday to Saturday only to receive money for items shipped only on Monday and Tuesday the next week.
“Then I would have to wait for next Monday, that is seven days, to get the money for items shipped the previous week,” he told Bounce News in Lagos.
The gap between the shipment days and payment days were frustrating, he said.
But if it had ended there, his problem would have been counted as insignificant. But the greater challenge started with the returned orders.
“Most of the items I have shipped started coming back to me as returns. That was even more frustrating than the delayed payment,” he lamented.
*Online shopping has become quite popular (only in conversations) in Nigeria
The online retailers incur extra logistics costs when an order is returned.
For sellers like Lawrence, it is even more devastating since they have little capital and cannot afford to maintain the cycle of transaction.
Since most items are ordered to be paid on delivery, the online retailer will not pay until the drivers reach the customer and deliver it face to face.
Sometimes it takes more than a week. And if it is returned, the vendor has to claim the item within 21 days or pay 600 naira per day that the item stays in the warehouse.
For Lawrence, he needs money from delivered items to make new shipments. So, he had to sometimes turn off his store because he could couldn't afford to ship orders because of delay in payment for already shipped items.
If he does not turn off the store and orders come in that he is unable to fulfil, he would have to cancel the order and pay a penalty of 600 naira.
This cycle continued until Lawrence was forced to shut down his store.
“What forced me out was that I had more returns than I could handle. And the online store could not pay for few items I had shipped on time, so I had to switch off the store,” he explained.
“Nigerians do not understand yet the concept of online retailing,” interjected Lawrence’s friend, Simon who told Bounce News he once had 83 returned orders.
*A huge chunk of Nigeria's population are estimated to be online shopping daily but most people walk into physical stores
“If they see what they like online, they will place order but when it arrives they tell you they don't like it anymore or that it is too red or too black or not pink enough or give one stupid reason or the other and some would disappear when the delivery claim the order.
“Some will order and travel and some will collect it and use it for two or three days and return it. All because they haven't paid, so they lose nothing,” he said.
“But those who pay as they order, wait to receive their items and can't travel or not pick their calls. Prepaid always means less or no returns,” he added.
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To Be Or Not To Be
The argument for or against cash on delivery in Nigeria has been ongoing for a while now.
The payment method was introduced at e-commerce’s arrival in Nigeria when it was the only reliable option due to lack of trust by consumers on online services, coupled with poor or dearth of reliable electronic payment infrastructure.
But within the past five years, challenges around e-payment has almost been completely sorted out, yet some online retailers cling to the method, and some analysts believe it is at their own expense.
“I am surprised that some retailers are still clinging onto it. I have been saying it over the past three years. Cash on delivery means you are not in business,” stated Lanre Akinlagun, the Founder/CEO of Drinks.ng.
Akinlagun was the first to pull the plug on cash on delivery in Nigeria three years ago. He told Bounce News, he does not regret the decision and would never think about it because it does not make any sense.
Like Akinlagu, there were a couple of others like Supermart, Yudala who bucked the trend by doing away with cash on delivery as well as transitioning their model by complementing their online stores with offline channels.
*Logistics is an essential part of e-commerce but a major headache for most operators
An analyst and online logistics entrepreneur, Obi Ozor told Bounce News that e-commerce all over the world is having a tough time but in Nigeria it is complicated by payment method that bloats the overheads of operators.
“In Nigeria, people pay for things before receiving them. Any business relying on anything otherwise will fail. In the next ten years, the only ecommerce companies that will survive in Nigeria are those without inventories and logistics fleet to maintain and are not relying on pay on delivery,” he said.
More so, if you look at the world over, ecommerce giants like Amazon and Alibaba have not turned profit and are beginning to return to the offline roots.
"Amazon just acquired Whole Foods for $13.7 billion recently and that is an ecommerce company. Those who are smart enough to return to offline roots will be the biggest winners", he argued.
The reality is beginning to dawn on some operators – that if ecommerce will survive, pay on delivery must be sacrificed.
A few days ago, one of Nigeria’s ecommerce giants, Konga.com announced that it was axing pay on delivery – the first by a major player.
According to CEO of Konga, Shola Adekoya, Konga in mid-November “made a bold step and became a prepay only platform”.
“In recent years, we have explored several solutions for payment and e-commerce in Nigeria and concluded that prepay is a necessary approach for our business and the market,” Adeokya wrote in an article he published on Medium.
According to him, “Given the cost of inflation and increasing challenges of managing payment-on-delivery, as well as the resulting level of order cancellations on the platform, we had to take this decision.
“We will continue to review other ways to provide payment-on-delivery to customers, but for the time being, we are prepay only.”
He added: “This decision means that we can run a more efficient business and focus our energies on orders that we are sure customers want. It also means that our operating costs will be lower, putting us on a better track where we can solve deeper issues that paying customers face on the platform.”
The chicken is finally coming home to roost or so it seems.
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