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Sunday, August 13, 2017

Sample Business Plan on How to Setup an Online Fashion Store in Nigeria

An online fashion store in Nigeria is a viable business venture but there are challenges which could potentially stifle its potential to be profitable, sustainable and ensure growth. Nigeria is one of Africa’s fastest growing and largest e-commerce markets and is expected to be worth at least N152 billion ($400 million) in annual sales by 2020. There are at least 150 existing fashion stores with online presence competing for a share of the ever expanding (16.1% annual growth) Nigeria target market. More of this breakdown will be explored in this article. 
An online fashion store is an online shop which stocks and sells a range of fashion items such as; hair products, clothing, bags, shoes, wrist watches, belts, cosmetic products, perfumes and designer fabrics among a host of other products. The online fashion store business hasn’t been around for very long with the major players in the market coming on board in 2011 with dealfish (now Olx.com.ng) setting the pace and the entry of other players such as; kasuwa now jumia.com.ng, konga, kaymu among others coming up at various times between then and 2015.

The Opportunity in Nigeria’ Online Fashion Market
In 2014, the Nigerian online retail market was worth at least N800 million per week in gross sales with fashion items capturing a sizeable 25 to 30% of that amount especially clothing and shoes. By 2016, the market has grown to over N1.5 billion a week with at least 105,000 transactions conducted on the two largest online retail stores namely; Jumia and Konga – despite an economic recession.

By 2020 when more Nigerians would have improved online shopping options with the expected development of online payments, the market would experience weekly sales of over N3 billion going by current market growth rates and expected market impact of technology and increased purchasing power of Nigerian shoppers.

The current demand level for online shopping is driven by several social and economic factors among which are; increasing urbanization, improved payment systems, increased brand awareness, cheaper internet access, stronger customer retention strategies and 12 other factors which will progressively increase annual demand by online shoppers for fashion items.

There are strong indications that less than 12% of Nigeria’s potential online market has been captured as at 2017 and this has implications for new entrants into the market as well as the top two market players – Konga and Jumia who currently control over 85% 
of all localized e-commerce transactions in Nigeria.

Challenges with setting up and running an online Fashion Store in Nigeria
There are at least 22 identified challenges that will adversely or moderately affect the success of running an online fashion store in Nigeria but here are a few to take note of;
  • There is very stiff competition in the market that new entrants must deal with if the hope to reach their target market.
  • Online scams in Nigeria is a major deterrent to online shopping among the potential target market
  • Cybercrimes like hacking, identity theft, phising and many others present serious logistical and financial challenges to online stores
  • How will customers in rural parts of Nigeria be served with their deliveries
  • The high incidences customer complaints which are left unattended to usually create negative backlash for online retail stores
  • Creating a trusted and respected brand is very expensive and many new startups must find less expensive ways of doing this which is painfully slow and inefficient

Financial Summary
The financial projections for this financial analysis is based on 5% sales conversion rate and average of N6,000 per transaction and 8 transactions per day for 300 days in a year, cost of sales 79.2% of gross sales.

Startup Summary
  • Premium e-commerce website: N250,000
  • Inventory: N500,000
  • Advertising Budget (6 months): N300,000
  • Operating costs (6 months): N630,000
  • Contingency: N300,000
  • Rent: N300,000
  • Other expenses: N600,000
  • Total: N2,880,000

Profit and Loss Summary  
  • Gross Sales:                 14,400,000   
  • Cost of Sales:               11,400,000
  • Gross Profit:                  3,000,000   
  • Operating Expenses:       1,260,000
  • Profit before Tax:           1,740,000
  • Taxation:                           522,000
  • Profit after Tax:              1,218,000
  • Return on Investment:       42.3%
  • Breakeven Period:           8th or 9th month
  • Payback period:              24th to 30th month

This is a challenging business to do but there are also plenty of untapped opportunities as the market is not properly served even by the big players. The success or otherwise of this opportunity depends on your ability to meet your sales target which in turn depends on having an effective marketing strategy and a thorough knowledge of market trends and consumer needs. Achieving these requires a detailed marketing plan and the right team to work with to make them happen.

Looking to setup an online fashion store in Nigeria and wish to have a professionally written business plan to help you accomplish setting one up? Give me a call: 0803 206 4106 or email me: paulonwueme@gmail.com