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Bright future for online retail in South Africa

By October 3, 2014December 9th, 2015Insights

“I was recently asked whether I felt that the closure of the four online shopping portals – SA Camera, Style36, 5 Rooms and Kinderelo – by media giant Naspers, was an indication that South Africa is not yet ready for online retail and that there is no money to be made in the industry,” said Cuan Chelin, CEO of leading investment group and one of SA’s recognized and respected brands, Super-Brands. “My answer was immediately confirmed by a Naspers announcement that its intentions were to restructure to focus on its general online store,”.

Chelin believes that online retail in South Africa does present its challenges, saying, “In its report for the year ending 31st March 2013, Naspers reported trading losses of R1.8 billion in its online retail portfolio. Our internet penetration in comparison to first world economies is quite low – estimating around 11 to 12% of South Africans have access to the internet compared to over 75% of the population in the developed world. In addition to this, many consumers still want the social experience of shopping in physical stores and have a natural tendency to want to physically see, touch and test products before purchasing them.”

“South Africa is however constantly developing and online retail is certainly growing at a rapid rate,” said Chelin, further commenting that the obvious drivers of growth in online retail in South Africa are:

Attractive online pricing
Increasing internet population further elevated by web enabled mobile devices
Increasing confidence in online banking and transacting
Advancements in logistics and IT
Traditional retailers also providing an online offering

The Super-Brands Group holds a number of online offerings from a number of their brands such as Canterbury and Skins. They have dedicated mono brand online stores as well as offerings from their retail businesses such as Toy Kingdom which has its own online store and also has exclusively supplied toys to

“Although each of our businesses are showing very good growth in the online market, I am not convinced that the traditional models of Amazon and other large foreign online retailers will work in South Africa. Our market is still relatively small in comparison to the rest of the developed world which makes the working capital requirements and risks associated with holding the required inventory levels prohibitive,” said Chelin.

“Consumers expect a wide variety and immediate access to products online. I believe that a more tailored approach, similar to Amazon’s third-party marketplace where merchants are able to set up their own virtual stores, trade their products alongside Amazons’, allowing them to leverage Amazon’s significant customer base and processing services is far more likely to be successful here.”
Commenting on current online retail strategies, Chelin says, “Price cutting is not a viable long term strategy and low price is no longer the key factor that impacts customers choice. Online retailers need to enhance the customer’s online experience by providing more value added services.”

“I see an integration of online and offline becoming more and more relevant as demonstrated in our recently launched Toy Kingdom @Play concept store in Cavendish Square. We are able to lease much smaller sites than the traditional Toy Kingdom stores, but still offer our customers access to our full product offering with next day deliveries on those items not held in-store. This ensures that customers still get the full in-store experience including the assistance and guidance of knowledgeable store staff.”

Chelin concludes by emphasizing that a core online investment area is m-commerce, stating, “With our high mobile penetration and rapidly developing mobile capabilities, South Africa’s mass market may to some extent skip web based retail entirely and move straight onto mobile commerce.”