You must be aware that e-commerce was said to have the biggest growth potential, not in the developed countries but in developing countries, and it was said that way because of some key points. First of all, it is worth noting that developed countries already have an e-commerce stores and they have brick-and-mortar stores as well where both of them were lacking in the developing nations which means that if e-commerce made its mark in the industry then it would have replaced the small number of brick-and-mortar stores. However, the problem with this theory was the deep discounting that these e-commerce startups gave to the people so that they can make a mark in the industry.
If we talk about Africa, its B2B e-commerce startups are struggling to survive right now because of the simple fact that their funding from VCs have stopped due to the financial crisis in North America and Europe. All the funds they already had have been spent in giving discounts to its consumers as well as salaries and other bonuses. Now, they are left with nothing in the bank and want funding from top VCs but they need to cut jobs and salaries as well as close operations in some areas.
The strategy of e-commerce companies for growing their audience has now come back to bite them as the VCs now want profitability instead of just a larger audience. One analyst firm’s CEO said “VCs are now looking less into growth and more into unit economics, which is abundantly lacking in this space,” and added that “Therefore, it will continue to get more challenging, particularly for FMCG [fast-moving consumer goods] B2B companies because of their high cost of capital expenditure.”
Another analyst says that “Many of these startups are forced to utilize their own logistics infrastructure to ensure consistent, timely deliveries. But it’s simply too cash-heavy to scale with such models, given the type of funding African startups receive”. He added that “Additionally, while the discounted promo had worked in acquiring lots of vendors, it’s not really sustainable for businesses in this period of drying treasuries. As you can see, companies now seldom run discount promos,”
