Rising Dreams of Web Commerce

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Millions of people in this megacity are prospering and many are shopping online for the first time.

But in a country that has become synonymous with online fraud, they would sooner hand money to a courier than enter their credit-card numbers on a website. So online shopping site DealDey.com employs of fleet of motorcyclists to dart through gridlocked streets to meet online shoppers waiting to pay for their purchases with cash.

That’s how Sim Shagaya, founder and chief executive of DealDey, which means “there’s a deal” in Lagos parlance, plans to bring online shopping to fraud-sensitive Nigeria. He hopes to create the Amazon.com Inc. of Africa, selling Lagos’s increasingly affluent consumer class everything from refrigerators to perfume to cupcakes.

“People are buying all kinds of things,” says the Nigeria-born Harvard graduate, bedecked in sneakers, faded jeans and a closefitting T-shirt. “But clearly, there are trust issues.”

Solving trust issues about online purchases, he believes, requires offline payment.

Mr. Shagaya’s DealDey represents one of the first big forays into online shopping for Nigeria, which has an economy that within the year could surpass South Africa’s to become the continent’s largest.

Already Africa’s most populous nation, Nigeria has a relatively young population that means growth lies ahead. The country is projected to become one of the world’s five most populous countries by 2050, according to the United Nations. It is now No. 7. A third of Nigeria’s 167 million people already have entered the middle class. And they are spending nearly half their monthly income on electronics, including toasters, microwaves and DVD players, according to investment bank Renaissance Capital.

That rush has caught the eyes of the world’s biggest retailers. U.S.-based Wal-Mart Stores Inc. last year spent $2.4 billion to take a controlling share in the Massmart family of retailers, which is based in South Africa and has stores in Nigeria and nearby Ghana.

For online retailers, this teeming city’s young consumer class and creaky infrastructure, such as jammed roads, present an opportunity. South Africa’s Kalahari.com opened for orders from Kenya and Nigeria in 2009 but based its warehouse in distant Johannesburg. That raised shipping costs beyond the reach of many potential customers, forcing the company to retreat the following year.

Online shopping has gotten a boost recently. Three years ago, two-thirds of Nigerians hadn’t heard of a debit card, according to a study by London research firm Cards International. Lately, though, the number of debit-card accounts has jumped, spurred by a government push to popularize card-reading machines and cut waiting times to get cards.

A third of Nigeria’s population is online. And not just at work on clunky desktop computers. Thanks to inexpensive data phones, a growing number of people are mobile, browsing on the bus.

Still, West Africa isn’t entirely hospitable for online shoppers. Local real-estate websites, for example, were plagued with crooks selling houses they didn’t own. A result is that villas around this city of an estimated 15 million people are spray-painted with the warning, “This House Is Not For Sale!”

Such challenges haven’t deterred Mr. Shagaya. In 2005, he left Google Inc.’s South Africa operation to start a billboard business in Lagos. The experience taught him how many retailers are struggling to find customers, so last year he raised about $1 million.

At the outset, he saw DealDey as a voucher-selling site, styled on U.S.-based Groupon Inc., that would help Lagosians comparison shop for blenders and television sets that they could pick up or have delivered at the vendors’ expense. DealDey’s first success was from selling printable coupons for cupcakes, oddly, a local status symbol.

Commissions from coupons are funding DealDey’s expansion: a squadron of motorcyclists who roar out of a 10,000-square-foot warehouse near Lagos’s airport to deliver James Bond movies, videogames and Steve Jobs’s biography to shoppers in town.

Mr. Shagaya aims to raise his consumer base to half a million by October from about 150,000 people today. He plans in coming weeks to unfurl a DealDey spinoff site, Konga.com, that in time would become Africa’s answer to Amazon.com, selling goods directly instead of selling goods and services from other vendors.

He had better hurry. Germany’s Rocket Internet GmbH within months is expected to open its own online shopping site for Nigeria. The deep-pocketed company hired thousands of people when it rolled out online shopping in China, India, Brazil and much of Southeast Asia. Rocket has set up a prospective site for Nigeria called Kasuwa.com that promises to carry an array of goods, including books, cosmetics and computers.

The company still is figuring out how it intends to store goods, says Managing Director Raphael Afaedor of Rocket Internet Nigeria. “It’s a sizable market,” he says. “The rest just becomes execution—that’s where we are at.”

DealDey and Rocket represent two clashing approaches. To keep inventory simple, Mr. Shagaya at first is focusing on books and DVDs. The products are easy to stock and buyers generally don’t return them. That emphasis might appear counterintuitive, though, in a country where 40% of the population can’t read and pirated movies abound.

Meanwhile, the problems of Lagos loom large. DealDey’s drivers have been ambushed, robbed and, quite frequently, stood up. Traffic snarls to a standstill. And many houses lack street numbers, so couriers rely on directions like, “Turn left after the woman selling plantains.”

Consumer preferences have presented a steep learning curve. Vacation getaways flopped. But coupons for hotel rooms across town moved swiftly—to couples seeking privacy. A DVD crate of U.S. blockbusters that tanked, such as “Spider-Man” and “Kung Fu Panda,” sits in Mr. Shagaya’s living room. “Schindler’s List” and the 1968 musical “Chitty Chitty Bang Bang” sold much better.

But nothing sells as well as the cupcake, a DealDey mainstay. “It’s quite random,” says Mr. Shagaya. “Lagos loves cupcakes.”

Write to Drew Hinshaw at drew.hinshaw@dowjones.com


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