While the number of e-tailers is growing in South Africa, there are still a number of hurdles that need to be overcome before these companies can start enjoying sustainable returns, writes KEVIN TUCKER, CEO of PriceCheck.
This year, online retail in South Africa will reach 1% of overall retail for the first time. While the number appears small, it marks a significant milestone for a sector that is attracting robust investment from both established and new players in the retail game. It underscores that online retail is now gathering momentum in South Africa, having maintained a growth rate of above 20% for several years, according to the World Wide Worx Online Retail in South Africa 2016 report. The report revealed that in 2015, the rate of growth was 26%, taking online retail to the R7.5 billion mark. This year, growth in Rand terms is expected to remain the same as in 2015, taking the total to above R9 billion.
However, while these figures are encouraging for the country’s growing number of e-tailers, payment gateways and online merchants, there are undoubtedly still many hurdles to overcome before they can enjoy sustainable returns. Compared to traditional retail, the profits are still paltry and the number of online shoppers spending regularly remains low. The majority of South Africans spend between R250 and R1000 when making a purchase online, and 33% of those surveyed made 10 or more purchases online per year.*
Limited Range, Limited Appeal
The most commonly cited challenge for local online retail is that South Africans remain hesitant to transact online, and are afraid to hand their banking details to payment gateways plagued by fraud.
Although online security is indeed a factor, it is less of an issue than the quality of what South Africans are presented with online. Indeed, the primary challenge is in fact the dearth of innovative business models and – as a direct result – the availability of products online (or the lack thereof).
As several reports have illustrated, most local e-tailers – both established names and newcomers – have a very limited range of products listed online, which deters potential customers and drives them into physical stores in order to enjoy the wide range of choices they have naturally become accustomed to. Lacking confidence in what they can find online, local shoppers will be less inclined to spend time looking, leading to less time spent overall on various e-commerce sites. This is a psychological barrier that e-tailers will need to work at overcoming. But as it stands, for various reasons, local merchants and brands have sparse product ranges listed online – which is often coupled with poor or unreliable delivery. As such, many local shoppers only hop online to research price points and find favourable deals, at which point they then travel to physical stores to complete the purchasing process.
For South Africans to move online and actually spend significant amounts (on a regular basis), they need to be presented with better quality products, and more of them. As it stands, local e-tailers are expecting to simply win on price, but it is arguably diversity and quality that will both differentiate them and drive the growth of South African e-commerce.
Showcasing the Standouts
The good news is that there are an increasing number of new players entering into this space that are experimenting with and pioneering different models. As mentioned above, infrastructure and delivery remain difficult, and there are psychological barriers to overcome before local online retail can reach its critical tipping point. The upcoming PriceCheck Tech & E-Commerce Awards will draw attention to some of the strides being made by individuals and companies, and will also highlight where some of the weaknesses lie.
Looking ahead, there are infinite opportunities for South Africa’s emerging e-commerce players – both established and entrepreneurial – but the key to long term success will surely lie in providing consumers with far more than what the local mall can offer.
* 2015 South African eCommerce Awards survey