Imagine not having to deal with rental space, having the autonomy to price goods competitively, and being able to tailor-make services to customers’ needs. These are just some factors that for some, make online shopping businesses trump retail stores.
While the battle for consumers and market share among retailers in brick-and-mortar stores still dominates and rages on, the e-commerce industry, though still in its infancy in South Africa, is starting to show potential.
The e-commerce industry has gained traction across the world and South Africa only recently began harnessing the benefits of this platform. In 2013 alone, the industry was expected to make up R 4.2 billion of South Africa’s GDP.
According to a MasterCard research from 2013, e-commerce makes up about 2% of the total retail market in South Africa.
However, the online shopping market has its challenges.
Head of marketing at Interactive Advertising Bureau South Africa (IAB), Sarah Rice, told Moneyweb that the country’s large land mass, poor transport logistics, lack of broadband penetration, and a persistent lack of trust in online payments, all hinder the take-up of online shopping. Rice says that while online shopping is not a new concept, the problem lies in educating consumers about the platform.
In South Africa, online shopping trends are unique and different to those of developed markets. Online shopping and retail stores work in tandem in SA, as consumers still rely on both for their shopping. “While e-commerce remains a small part of South Africans’ buying behaviour – they do turn to technology to inform their decision making,” Rice says.
Price Check is an example of the dual-dependency of consumers, says Rice. Consumers use the website to compare prices on goods, and they then make their actual purchases in-store.
In this ever-competitive retail market, businesses need to adapt and bolster their online presence to elevate their position above their competitors. Most businesses, Rice explains, have an online presence that is limited to social networking profiles, email marketing and websites, which is a clear indication of that there’s room for improvement in online shopping.
David vs Goliath
The online shopping market is made up of both big players and new entrants into the market. Big players are those who have an existing, tried-and-tested brand derived from their stores. Woolworths is one of the popular retail outlets that offers online shopping. While most online shopping businesses in the country have clothing, beauty products and books in their product line, Woolworths has used its existing store product line to bolster its online business.
The retail giant says that the number of online shoppers continues to double year on year. Woolworths’ head of online shopping, Nikki Cockcroft, says that the majority of its online purchases are for food and household goods, and nearly half of online users shop more than once a month.
With large retailers capitalising on audiences online and, in some instances, dominating the online shopping market, where does it leave small and independent players?
Bidorbuy, which was launched in 1999, at the height of the dot-com frenzy, is regarded as an online shopping success story. It is about building a brand that is trusted by both buyers and sellers, which takes a lot of time, money and hard work, CEO Jaco Jonker explains.
Jonker’s business has captured the bidding market for goods in the e-commerce market, for which, he says, internet access is essential. “Mobile devices are becoming more and more affordable and this is helping people connect to the internet,” he adds.
Developed markets access the internet through hardware, while in developing nations (particularly in Africa), internet access through cell phones, is popular. Cockcroft explains that traffic from smartphones increased by 38%, while 8% of traffic came from tablets in 2013.
Competition among online shopping businesses is rife. Jonker explains that businesses must be in a position to complement each other rather than compete, to make the local market grow further. But, positively, Jonker says that in South Africa, the market is growing at “25-30%”, which “looks extremely positive”.
“Just by looking at the annual increase in users to our website and the volumes of goods traded we can confidently say that there is take-up of online platforms like ourselves by consumers,” he says.
Survival in product offering
If the recent move by Naspers to pull the plug on some of its e-commerce sites run through its online investment arm, MIH Internet Africa, is anything to go by, then South African online companies are poised for an even bigger challenge to gain market share.
The technology company shut down clothing business, Style 36; furniture business, 5 Rooms;, and SAcamera. Naspers says it will focus on its core online shopping business, kalahari.com, which specialises in general retail products. According to Remo Giovanni Abbondandolo, chief marketing officer of the companies Africa Internet Accelerator (AIA), Style 36, 5 Rooms and Kinderelo, the plan is to “grow aggressively over the next year”. AIA is an internet start-up company with a majority investment by Naspers’ MIH Internet Africa.
Abbondandolo explains that Naspers’ decision is based purely on a shift in strategy, and was not related to performance.
Consensus from those at the helm of online shopping businesses is that having a unique product and service offering is vital for survival. For instance, Cape Town-based Yuppiechef, which was founded in 2006, has a range of offerings beyond kitchen supplies, and this has anchored its position in the market.
One of Yuppiechef’s directors, Paul Galatis, says that, in addition to selling the products they offer, an online cooking school and providing considerable food-related content for their online customers, are two of the factors that have kept the business at the forefront of the kitchenware category.
He adds: “We are seeing 100% year on year growth and we don’t see foresee that slowing down soon. South Africans currently make less than 1% of their retail purchases online while more developed countries are sitting north of 10%”.
Yuppiechef has grown from seven employees in 2011 to 85 today, with its biggest market being in Johannesburg. The company is also forging ahead with its expansion plans and now delivers to Kenya, Botswana, Mauritius, Mozambique, Namibia and other parts of Southern Africa.
Diversity in one’s product offering to rope in customers is also echoed by Sylvia Gruber, CEO of online beauty store, Rubybox.co.za, which has been operating for over two years. The company began distributing samples to customers who signed up online to receive a monthly subscription service customised to their beauty profile, before they committed to buying products.
While Gruber competes with large beauty conglomerates, her response is: “Any attractive category to play in will get competitive quickly, it depends on the unique position the business will take”. Her company offers not only beauty products, but also supplies its customer base (which is largely made up of women) with beauty content on its website.
Galatis says that creating an exceptional online customer experience is the ultimate factor in customers making repeat purchases, and that customers have a lower tolerance for poor service from online shopping businesses, compared with physical stores. “Most companies deliver very average and inconsistent online experiences and they expect customers to come back. Online businesses need to focus on and continually invest in creating consistently remarkable experiences for customers if they expect them to return,” Galatis notes.