Jumia Technologies AG made a deal to sell French retailer Leroy Merlin’s products in West Africa, part of a plan to expand its reach and cut losses in half by the end of 2023.
The Africa-focused e-commerce giant will sell the French company’s tools and do-it-your-self products in Ivory Coast and Senegal, focusing on high-growth rural areas and smaller cities, Chief Executive Officer Francis Dufay said.
More than half of Africa’s 1.4 billion-strong population lives outside big cities or in rural areas where the economies are driven by agriculture, Dufay said. This means there’s strong demand for the kinds of products Leroy Merlin offers in areas that are not well-served by retailers.
“Jumia is pushing into these areas, we have the right suppliers and assortment of products, and a light logistics model to address those smaller pool of consumers,” he said. “This would be much harder to do for bigger supermarkets and shops for instance.”
It’s part of Dufay’s strategy to reduce Jumia’s losses by 50% by the end of the year, through a combination of cutting costs and targeting high-growth rural markets. The company can expand into smaller cities at a fraction of the capital spend needed for larger ones due to the lack of competition, Dufay said.
The deal allows Leroy Merlin to serve African customers without initially putting shops on the ground, Dufay said.
In pilots, almost 40% of the Leroy Merlin goods available on the Jumia website in the two French-speaking countries sold to customers outside of Ivory Coast’s main city Abidjan.
“While we are facing big headwinds, we are building these new markets in smaller cities, and plan to drive margins with that,” Dufay said. Jumia is considering taking the model to Kenya, Nigeria and Ghana next, he added.
Jumia was founded in 2012 by French entrepreneurs Sacha Poignonnec and Jeremy Hodara. They both left last year, when Dufay took the reins of the the e-commerce firm that’s often referred to as the “Amazon of Africa.” The company has tried to lead the e-commerce sector on a continent with a young and increasingly tech-savvy population that uses smartphones to bridge infrastructure and services gaps. Expansion often requires Jumia to do its own mapping and set up logistics networks.
Since its listing in New York in 2019, the company has been struggling with persistent losses and pressure on its share price. Dufay has been aggressively cutting costs, including reducing headcount by 20%, or 900 employees.
The shares fell 1.7% to $3.24 at 10:29 a.m. on Wednesday in New York.