Jumia Kenya lost goods worth sh56 million late last year, its filling to the U.S. Securities and Exchange Commission indicate.
It is a requirement for companies to tell their potential investors all the risks facing them and the mitigating measures they have put in place before being allowed to sell their shares publicly.
The company has 3,277 square meters of warehouse space on Mombasa road.
In its fillings, Jumia says that its operating environment is volatile where potential for violent crime interferes with delivery and fulfillment operations. “In particular, given the fact that a high proportion of transactions on our marketplace are settled in cash”, the fillings add. Majority of its transactions in Kenya are cash on delivery.
Third-party delivery fraud
Jumia says that they face the risk that third-party delivery agents might misappropriate inventory. They struggle to verify delivery when their third-party delivery partners deliver packages without obtaining consumer signatures.
“When goods are delivered without verification, we may be required to deliver a duplicate product. When a third-party delivery agent successfully delivers a product and accepts cash payment from the consumer, we face the additional risks of late collections (in the event that the third-party delivery agent does not remit the funds to us on time) or unrecoverable receivables (in the event that the third-party delivery agent commits fraud or becomes insolvent)”, the e-commerce giant admits.
The company says that in Kenya where 95 per cent of their customers paid in cash or cash equivalents in 2016 they discovered in early 2018 that sh82 million (€720, 000) of cash payments remained uncollected in 2016. The large majority of which was never subsequently collected.
They blame this on an insufficient cash reconciliation system, which was replaced with an automated system that allows them to monitor transactions in each of our markets on a daily basis. “Even though we have taken measures to reduce the risks of fraud and uncollected receivables, these risks – whether facilitated by our employees, sellers, partners or consumers – remain, due largely to the prevalence of cash on delivery in many of our markets”.
Consumers also took advantage of flaws in Jumia to defraud it sh62.4 million (€550,000) in December 2017. The company says the fraud was through electronic payment suppliers to acquire goods on their marketplace.
They admit that consumer fraud may harm seller confidence in the integrity of our marketplace and the certainty of payment.
“Illegal, fraudulent or collusive activities by our employees could have a material adverse effect on our business, financial condition, results of operations and prospects and could subject us to liability or negative publicity. While we have not experienced any material events of this nature in the past, we have identified allegations of employee misconduct, which led us to improve our internal controls and our cash reconciliation system.”
Jumia cite that terrorist attacks, like the Dusit attack in January 2019 discourage economic activity, weaken consumer confidence, diminish consumer purchasing power or cause harm to their sellers and consumers in other ways.
The e-commerce says that increase in internet penetration which is still low in Africa and competition are some of the challenges they face that directly impact on its ability to sell more volumes by reaching more people.
“Our business model relies on the continued growth of the internet as a platform for online consumer transactions in Africa. Rapid growth in the use of and interest in the internet, particularly as a way to conduct commerce, is a recent phenomenon, and there can be no assurance that this acceptance and use will continue to exist or develop. To grow our user base successfully, consumers who have historically used traditional means of commerce to purchase goods and services must accept and use new ways of conducting business and exchanging information and funds online” it adds.
Moreover, the company paints a cautious picture of its global market. Established in 2012, they have been unable to be profitable. The company, operating its business through Africa Internet Holding GmbH and its subsidiaries, have incurred accumulated losses of €862.0 million (sh98 billion) as at December 31, 2018.
“There is no guarantee that we will generate sufficient revenue in the future to offset the cost of maintaining our platform and maintaining and growing our business. Furthermore, even if we achieve profitability in certain of our more mature markets, where e-commerce is growing rapidly, there is no guarantee that we will be able to break even and achieve profitability in other markets, where e-commerce adoption is slower”, Jumia asserts.
They expect that operating expenses will continue to increase as they intend to expend substantial financial and other resources on acquiring and retaining sellers and consumers, growing and maintaining their technology infrastructure and sales and marketing efforts and conducting general administrative tasks associated with the business, including expenses related to being a public company.
“These investments may not result in increased revenue growth. If we cannot successfully generate revenue at a rate that exceeds the costs associated with our business, we will not be able to achieve or sustain profitability or generate positive cash flow on a sustained basis and our revenue growth rate may decline”, Jumia says.