Picture this: A small corner shop in Lagos, Nigeria, struggling to meet customer demands and grappling with the challenges of an ever-evolving retail landscape. Now, imagine that same shop transformed into a thriving digital commerce giant, effortlessly navigating the complex world of payments, supply chains, and brand partnerships. Sounds incredible, right? That’s precisely what Open Commerce is doing for retailers in Nigeria.
Every day, Nigerian retailers face seemingly insurmountable odds. From the inefficiencies of the traditional distribution chain, the lack of access to financial services and over-dependence on cash payments, these obstacles often hinder retailers from reaching their full potential. Yet, despite these challenges, Nigeria’s retail sector is poised for significant growth, having hit $108 billion in sales in 2021 after seven straight years of decline, and is projected to hit a steady 4.4% CAGR from 2021 to 2026, according to Bain & Company.
This growth opportunity in Africa’s most populous country can only be fully harnessed by a digital transformation of the retail sector, where the outdated, broken manual distribution process is replaced with an efficient, digital-first trading model. Open Commerce is already leading the charge in revolutionizing retail in Nigeria by empowering retailers with the tools they need to transform into digital e-commerce powerhouses.
In this article, we’ll explore how Open Commerce is leading a revolution in retail and transforming humble corner shops into digital retail powerhouses.
The Retail Landscape in Nigeria
The retail landscape in Nigeria is a complex web of challenges and opportunities where small businesses must constantly adapt to stay ahead. To unlock the sector’s full potential, it’s crucial to understand the hurdles retailers face and identify the underlying issues in the market. This will enable the development of innovative solutions that will empower retailers to thrive in a rapidly evolving market.
Some of the major challenges and opportunities available in the Nigerian retail market include the following:
Cash and Digital Payments
Cash has long reigned supreme in the Nigerian retail industry, with an estimated 95% of transactions conducted using physical currency. However, this heavy reliance on cash payments presents several challenges for retailers.
For instance, small business owners have to spend hours counting cash and reconciling their accounts, leaving less time to focus on growing their businesses. In fact, cash handling costs can account for 4.7% to 15.3% of a retailer’s annual revenue. Moreover, cash payments can lead to revenue leakages, as transactions are harder to track and verify, making businesses more susceptible to fraud.
On the B2B side, a cash-based payment system makes it difficult for retailers to negotiate better pricing or access credit facilities, as there are often no detailed records of payments. Cash payments also pose a significant risk for brands and distributors, who must spend extra resources on reconciling cash payments. Recent industry data shows that managing and processing cash costs brands and distributors between 2% and 9% of total revenue.
Recognizing the importance of reducing dependence on cash payments, the Nigerian government has embarked on a cashless policy that seeks to reduce the amount of cash in circulation and increase the adoption rate of digital payments. These efforts have begun to pay off, as Nigeria’s volume of real-time digital transactions surged by 94.7% year-on-year to 3.7 billion in 2021. This rapid increase in transactions resulted in an estimated cost savings of $296 million for businesses and consumers and helped unlock $3.2 billion of additional economic output.
As Nigeria transitions into a cashless economy, adopting digital payments is key to unlocking new opportunities for growth and success in the retail sector. By embracing digital payment solutions, retailers can overcome the challenges posed by cash transactions, paving the way for a more efficient, secure, and customer-centric retail landscape.
Supply and distribution chains
The retail industry is severely fragmented, with 90% of all retail activity dependent on informal sales channels such as neighbourhood markets and kiosks. This fragmented retail structure often leads to product shortages, delivery delays, and increased costs.
One major challenge retailers and distributors face in Nigeria is the fragmentation and inefficiency in how consumer goods are moved and distributed. As a result, retailers often have to rely on multiple intermediaries, leading to higher costs and delayed delivery of goods. Another significant challenge in the retail sector is the lack of visibility across the distribution chain. When retailers and distributors do not have proper visibility of what products are needed in any geolocation at a particular time, it will often cause stockouts or overstocking. This consequently causes them to lose sales or incur increased storage costs respectively.
Digital technologies can transform how retailers and distributors across Nigeria manage their supply and distribution chains and can streamline the distribution process by enabling direct connections between manufacturers, distributors, and retailers. For instance, with a simple interconnected stock ordering platform, retailers can instantly connect with distributors and brands to order the stock they need. This would ensure the timely delivery of essential consumer goods and provide the distributor with accurate, up-to-date inventory level information, significantly reducing stockouts and overstocking.
Open Commerce is revolutionizing retail
The Nigerian retail sector is ripe for a digital transformation. Retailers and distributors need a new way of buying, selling, and paying for goods that will unlock the tremendous growth opportunities in the industry and ensure that over 200 million consumers have access to essential consumer goods they need at affordable prices.
This is where Open Commerce comes in. Open Commerce by RedCloud is a cutting-edge solution that’s revolutionizing the retail landscape across Nigeria and solving the challenges that retailers and distributors face every day
Let’s look at cash payments. While several digital payment options are available in the country, most of these solutions do not address the elephant in the room – small retailers like using cash and are unlikely to switch to digital payments unless it provides a significant incentive. In addition, most digital payment solutions require a BVN (bank verification number) to open, which excludes every unbanked retailer, of which there are millions.
To solve this problem, Open Commerce built the world’s largest local payment network with an extensive agency network called RedPay. RedPay allows retailers can take their cash to the nearest cash-in point, ‘upload’ their cash into the app and use it to order stock. They can also sell digital products like airtime, TV subscriptions, etc., to their customers, giving them an additional income stream. RedPay also provides retailers with access to credit facilities based on their trading history on the Open Commerce platform. This is a game changer for retailers, many of whom do not have bank accounts and have been excluded from the formal financial system for decades.
Open Commerce is also fixing the broken supply and distribution chains by connecting brands, distributors, and retailers on a single open platform. Now, retailers can directly order from any brand or distributor in their local area with just a few clicks, bypassing multiple intermediaries and ensuring timely deliveries. This allows us to build an efficient, cost-effective supply chain that allows retailers to finally drive consistent growth.
And we are beginning to see the effect Open Commerce has on Nigeria’s retail market. Over 200,000 retailers and distributors are actively trading with Red101 – the world’s first open commerce platform and unlocking significant growth opportunities.
Every day, we see and hear from retailers who have been able to drive exponential growth in their businesses. For example, First Ambition, a distributor in Port Harcourt, Nigeria, increased sales revenue by 300% and grew profit margins by 30% in a few months.
Open Commerce is making it possible to tackle the Nigerian retail sector’s challenges, empowering small corner shops and transforming them into digital micro-entrepreneurs. We are giving millions of retailers access to the tools and solutions that will enable them to grow their businesses.