Emerging markets appeal to retailers in developed markets as they seek growth and returns amid revenue plateaus, but SA fails to make the grade in terms of developing countries' e-commerce panorama.
This is according to AT Kearney's Global Consumer Institute, which yesterday released the 2012 Retail e-Commerce Index: “Online Retail: The New Frontier for International Expansion.”
A pilot research project for the international firm, the index examines the top 30 countries in its Global Retail Development Index, and ranks the top 10 in terms of retail e-commerce potential. It analyses 18 infrastructure, regulatory and retail-specific variables, revealing that large emerging markets with an active online user base and solid infrastructure offer retailers the greatest e-commerce potential in the near-term.
SA does not even feature on the top 30 list, let alone finding a place in the top 10. The firm says, however, it is becoming increasingly more attractive as the local market matures.
Index indications
AT Kearney's inaugural e-commerce index puts China at the top of the list, with Brazil, Russia, Chile and Mexico, respectively, rounding out the top five.
Researchers say it is China's vast online retail market that drives the country to the top ranking. “China's current online retail market size of $23 billion (about R194 billion) is second only to the US and is predicted to explode over the next five years, growing at 29% a year as Chinese infrastructure and online purchasing behaviours evolve.”
While several distinct categories are popular among Chinese online shoppers, consumer electronics and apparel are the largest.
Mike Moriarty, AT Kearney partner and study co-leader, says: “China's infrastructure challenges hinder realisation of the country's full e-commerce potential. Delivery infrastructure varies outside of metropolitan hubs and inhibits the efficiency and effectiveness of the 'last mile' of online retail product delivery.”
Brazil's online market potential, says AT Kearney, is a key factor in that country's number two ranking. “The country's active online user base commands $10.6 billion (about R90 billion) in online retail sales, the largest in Latin America. Brazil's online market is predicted to expand 12% a year over the next five years as online shopping becomes more mainstream across most retail categories.” Similar to China, appliance and consumer electronics are the most common products sold online in Brazil. However, in this case online apparel sales are marginal as the fashion-savvy Brazilian consumer values the social experience that comes with in-store shopping.
The firm says third-place contender, Russia, earns its spot due to its large online user base and a significant online retail market. “Russia has 60 million Internet users, the largest online population in Europe, and 15 million online shoppers. Russians also own 1.8 cellphones per person and browse the Internet regularly on their phones. These market dynamics translate into a current online retail market size of $9.1 billion (about R77 billion).” Like Brazil, the Russian market is projected to grow 12% a year over the next five years.
Lagging uptake
In comparison to the top three, SA falls drastically short, with its online retail value sitting at just R2.5 billion in 2011 - over a third less than Russia and more than nine times inferior to China's online retail market. However, AT Kearney says this figure has grown at over 30% per year, for the past five years - an indication that, while SA lags, it is gearing towards e-commerce take off.
There are a few reasons for SA's relatively substandard e-commerce potential, says AT Kearney principal Martin Sprott. He says the low Internet user base constitutes a substantial part of the reason, while lower income brackets, poor credit and debit card penetration and lack of consumer education also contribute.
According to World Wide Worx, SA's Internet user base was 8.5 million in 2011. This is a penetration of 13.9% and represents 4.3% of Africa's entire user base. Sprott points out, however, that it is growing at a rate of 25% per year.
“[Furthermore] SA only has a 0.2% credit card penetration, which represents 20% of South African consumers. This is exceptionally low compared to, for example, Brazil - where the figure is 110%.”
Sprott says debit card ownership in SA is also marginal, with less than one card per South African. He cites Malaysia as being on the opposite side of the spectrum, where there are almost six cards per person.
World Wide Worx MD Arthur Goldstuck said, at the time of releasing a report outlining online retail in SA in 2011, that while e-commerce had not yet reached vast proportions in SA, it was growing at a very high rate. He projected growth of 40% for 2011 and this, he said, “even before a sustained growth in uptake that we expect from 2013 onward”.
Goldstuck predicted this year would be a significant one for the online retail industry, in accordance with the digital participation curve. “[2012] is the year when the growth of the number of experienced Internet users in SA begins to accelerate. The curve will rise steeply from 2013 for the rest of the decade, indicating sustained growth.”
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