Giant retail chains, big media groups, international investors and enterprising entrepreneurs are pouring millions of rands into SA's fledgling e-commerce market in the hope of reaping rich rewards.
E-commerce accounts for less than 0.5% of local retail sales. However, it promises big returns to companies that win the hearts of SA's fast-growing army of Internet shoppers. E-commerce revenues are widely tipped to climb more than 30% a year for at least the next five years. Current annual revenues are around R2 billion. More importantly, the development of e-commerce is set to be a crucial component in wide-ranging changes sweeping the global retail industry.
"E-commerce is the most exciting space in business. It is the interface between the old business model that is falling away and a new model of business that could go in any number of different directions," says Ben Williams, GM of Exclusive Books' online operations.
Avusa media group subsidiary Exclusive Books is one of several prominent retailers eager to grab a large slice of the emerging e-commerce market. Woolworths and Edcon, parent of CNA, Edgars and Jet Stores, have launched extensive e-commerce services. Mr Price has also entered the e-commerce fray. Other big retailers are expected to overhaul their online shopping services soon.
"In five years' time, retailers that are not in the e-commerce space will never be able to catch up," warns Nikki Cockcroft, head of online services at Woolworths.
The local e-commerce market has also attracted foreign investors. US firm Groupon and European start-up incubator Rocket-Internet have set up subsidiaries in SA. Tiger Global Management, a big US hedge fund, has bought stakes in several local e-commerce businesses, including Takealot and BidorBuy.
"The South African market is big enough for our business. It is growing very fast and competition is still low," says Emilian Popa, CEO at Rocket-Internet SA.
E-commerce is the most exciting space in business.
Rocket-Internet, which specialises in developing companies modelled on successful Internet businesses, has launched its Zando footwear and 5rooms furniture e-commerce businesses in SA. The European group, a shareholder in Groupon, also helped engineer the US firm's purchase of local company Twangoo last year.
Strong niches
New arrivals to the local e-commerce market are locking horns with well-established online shopping specialists like Naspers subsidiary Kalahari, Takealot, Loot and WantitAll. Several other local firms have already carved strong niches in e-commerce markets such as electronics goods vendors Incredible Connection and DionWired, gifts supplier NetFlorist, and group-buying service Wicount. Others, such as communications service provider Mxit and recent start-up LivDigital, are just moving into the market.
To play in this space, you must have big investors with patience and insight.
Shadowing participants in the local e-commerce sector are global online shopping giants Amazon and eBay. Although these vendors don't operate retail facilities in SA, they are attracting a growing number of South African Internet shoppers. Such 'stealth' competition is likely to increase as big US and European retailers expand their e-commerce operations and look for new business abroad. Multinational purveyors of digital products, such as music, movies and publications that are bought and delivered online are also likely to attract increasing numbers of South African customers.
Most e-commerce traders are confident the local market can accommodate the growing number of new entrants. "There is more than enough business for everybody. It's a case of a rising tide raising all ships," says Edcon e-commerce executive David Gibbons.
Much of this optimism is grounded in the widespread belief that retail chains will pull large numbers of customers into the e-commerce arena. Growing confidence in online services and transactions among SA's swelling ranks of Internet users is also expected to fuel the e-commerce business.
Arthur Goldstuck, MD at research firm World Wide Worx, reckons most Internet users need to be online for at least five years before they use e-commerce services. He points out that the number of Internet users in SA began to climb steeply in 2008 as a result of increased infrastructure spending and falling service costs.
Tipping point
"There is a significant tipping point coming in 2013 when the e-commerce market will grow sharply," says Goldstuck. He anticipates strong growth in the e-commerce sector for at least five years. There are currently nearly four million people in SA who have been online for five years or more. Next year there will be 4.6 million and this number will more than double in five years, says Goldstuck.
While most e-commerce vendors are bullish about the local market's prospects, increasing competition is already forcing firms to sharpen prices, broaden product offerings, improve service and hike marketing spend.
Loot CEO Gary Hadfield anticipates consolidation in several sectors of the local e-commerce market. He adds that some local and international entrants to the market have exit strategies that will kick in within two to five years.
"The market is tough. I'm glad I don't have to start up at this point," says Jaco Jonker, CEO at BidorBuy. The online auction site began trading in 2000.
"We are all fighting for the eyeball of the consumer. You need to retain that contact. You have to keep adding new functionality, increasing content and providing an exciting shopping experience. You must be where the customers are. Mobile computing is going to be a big opportunity," says Jonker.
Differentiation, the ability of e-commerce vendors to distinguish themselves from rivals, is essential, says Edcon's Gibbons. He expects specialist e-commerce firms to take advantage of their close focus on the local market and their ability to quickly adapt to new threats and opportunities. The big retailers, says Gibbons, will look to capitalise on the power of their brands, their close engagement with large numbers of customers, and their extensive presence in malls and high streets throughout the country.
"Credit is a big differentiator for Edcon. We have access to 3.9 million active credit account holders," says Gibbons.
Shopper convenience
Woolworths' Cockcroft adds that big retailers need to integrate e-commerce into their business strategies. "Woolworths is pursuing a consumer-centric strategy. We want to meet the consumer at all places and at all times when they want to shop, whether it be in the mall or on the Internet, social media or mobile platforms. If you nail convenience for the shopper, you can really get ahead," she says.
Cockcroft remarks that local e-commerce vendors need more than innovative strategies and efficient businesses to succeed. "To play in this space, you must have big investors with patience and insight. Investors and shareholders are spending a lot of money in the e-commerce market and they want to see returns," she says.
As the local e-commerce market grows, it will not only be the online shoppers who will be looking for a good deal. The patience and pockets of investors in the e-commerce market are likely to play a big role in which vendors survive and which fall by the wayside.
First published in the September 2012 issue of ITWeb Brainstorm magazine.
Share