Rising Costs, Shrinking Margins: Why Africa's E-Commerce Industry Must Reinvent Itself

Industry Leaders Call for New Strategies as Operational Pressures Intensify

Africa's e-commerce sector is entering a more demanding phase, with operators facing mounting cost pressures, evolving competition, and increasing scrutiny of traditional business models.

Speaking at the 3rd Annual E-Commerce and Payment Forum organized by the Africa Retail Academy at Lagos Business School, co-convener Olu Akanmu highlighted the growing challenges confronting both business-to-consumer (B2C) and business-to-business (B2B) e-commerce players across the continent.

According to Akanmu, the industry's already-thin margins have come under even greater strain over the past year due to rising inflation and escalating logistics expenses, particularly in last-mile delivery.

"Operational costs have increased significantly, while weak consumer purchasing power limits how much of these additional expenses can be passed on to customers," he noted.

Profitability Pressures Force Strategic Shifts

The squeeze on profitability has already triggered major strategic changes within the sector.

Akanmu pointed to the recent decision by a leading Nigerian B2B e-commerce operator to exit traditional e-commerce activities, a move that mirrors the path taken by Kenyan commerce platform MarketForce, which also pivoted away from B2B e-commerce operations in 2024.

These developments underscore a growing concern across the industry: whether traditional e-commerce models can sustainably deliver returns in African markets characterized by high operational costs and infrastructure challenges.

Chinese Giants Deepen Their Presence

Another major development shaping the competitive landscape is the continued expansion of international e-commerce platforms.

Chinese marketplaces such as Temu and Shein have strengthened their visibility across African markets, introducing new dynamics into online retail.

While Temu's aggressive customer acquisition campaigns have moderated compared to its early market-entry strategy, Akanmu suggested the company appears to be focusing more on driving engagement and repeat purchases among its existing customer base.

Yet despite concerns that these global platforms might dominate local commerce, African small and medium-sized enterprises (SMEs) have demonstrated remarkable resilience.

Social Commerce Continues to Thrive

Rather than being displaced by global competitors, local merchants are increasingly leveraging social commerce channels to reach customers.

Platforms such as Instagram, Facebook, TikTok, and WhatsApp have become critical sales channels for hundreds of thousands of SMEs across Nigeria and other African markets.

In many product categories, consumers now begin their online shopping journeys through social platforms rather than conventional e-commerce websites.

Akanmu noted that even traders operating from major commercial hubs such as Balogun Market in Lagos and Fagge Market in Kano are actively selling online, supported by Nigeria's real-time digital payment infrastructure and a growing network of informal delivery providers.

The result is a rapidly expanding social commerce ecosystem that continues to gain market share and consumer trust.

Three Strategic Questions Facing E-Commerce Operators

As the industry adapts to these realities, Akanmu identified three critical areas that require urgent attention.

1. How Can E-Commerce Companies Protect Margins?

With logistics costs rising and customer spending remaining constrained, operators are being forced to rethink fulfillment strategies.

One notable example is Jumia's increasing reliance on pickup stations as an alternative to direct home deliveries.

According to Akanmu, the company reported that 74 percent of package deliveries in the first quarter of 2026 were fulfilled through pickup locations rather than doorstep delivery.

The shift reflects a broader industry trend toward cost optimization and operational efficiency.

2. What Business Models Work Best in Africa?

The recent exits and pivots by several B2B e-commerce operators have reignited debates about the viability of asset-heavy business models.

Industry sentiment increasingly favors asset-light approaches that reduce capital expenditure and operational complexity.

However, Akanmu cautioned that replicating the highly scalable models used by Asian giants such as Alibaba and Temu may not be straightforward.

"How asset-light can businesses realistically become in Africa when supporting infrastructure and ecosystem partnerships remain relatively weak?" he questioned.

Unlike mature markets such as the United States and China, where robust logistics, warehousing, and third-party service networks support e-commerce operations, African businesses often need to build or directly manage critical parts of the value chain themselves.

3. Where Will Future Revenue Growth Come From?

Perhaps the most important challenge is revenue diversification.

Akanmu argued that e-commerce should increasingly be viewed as a foundational transaction layer rather than the sole source of profitability.

Global success stories support this view.

He pointed to Amazon, noting that the company's long-term profitability was significantly strengthened through the creation of Amazon Web Services (AWS), which generated higher-margin revenue streams beyond retail operations.

A similar trend is emerging in Africa, particularly among B2B commerce operators that are expanding into merchant lending by leveraging transaction and customer data generated through their platforms.

However, Akanmu warned that diversification into financial services comes with its own risks.

A key consideration, he said, is whether operators fully understand the cost of risk associated with lending and whether these activities can genuinely improve profitability rather than erode already-thin distribution margins.

He also challenged industry stakeholders to explore additional scalable revenue opportunities that can be built on top of existing e-commerce infrastructure.

An Industry at a Crossroads

As Africa's e-commerce sector matures, the focus is shifting from rapid growth to sustainable profitability.

The industry now faces difficult but necessary questions about cost management, business model innovation, operational efficiency, and revenue diversification.

These themes formed the foundation of discussions at this year's Africa Retail Academy E-Commerce and Payment Forum, where industry leaders gathered to explore how African commerce can remain resilient in an environment defined by tighter margins and growing competition.

For many operators, the next phase of growth may depend less on attracting customers and more on building business models capable of delivering long-term commercial sustainability.