Amazon coming to SA for a slice of an already shrinking retail pie

Online giant Takealot and retail groups will have to watch out.
The pandemic forced local retailers to up their game in the online space, putting them in a better position to compete with Amazon. Image: Michael Nagle/Bloomberg

American multinational Amazon is reportedly getting ready to set up shop in South Africa come February 2023, threatening the dominance of Naspers-owned e-commerce retailer Takealot and SA retailers.

According to Business Insider reports earlier this week, leaked documents revealed Amazon’s plans to expand its presence to five new countries, including South Africa and Nigeria, by early next year.

This is not a surprising move by Amazon, which already has a presence in SA through its Amazon Web Services business based in Cape Town. The group is also looking to set up its African regional head office in the Mother City, anchoring the controversial R4 billion River Club mixed-use development.

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In addition to an online marketplace, consumers will have access to Amazon Prime, which offers members free and faster delivery as well as other benefits.

Competition

Amazon’s presence in South Africa will not only provide some much-needed competition for incumbent Takealot: Sasfin equity analyst Alec Abraham tells Moneyweb the e-commerce giant’s presence will create competition for retailers in the fashion, appliances and home improvement categories as well.

Abraham notes that Amazon will however only truly compete with Takealot if it offers South African consumers a product catalogue that resembles the variety offered to the US market; anything less, he says, will fall flat.

“If you look at how Amazon is so dominant in the US, I think there are two factors that really set it apart – first is the range of goods that it has on its sites, the number of third-party sellers and their quick delivery.

“In terms of taking on Takealot, I think that to the extent that they are going to replicate the range of goods available on the site, incorporate third-party sellers and the delivery speed – to the extent that they can compete with Takealot on these critical measures is how successful they will be here.”

Timing

Abraham points out that the onset of the Covid-19 pandemic in 2020 forced South African retailers to accelerate omnichannel growth, meaning they are now better placed to compete with Amazon than they would have been pre-pandemic.

Fashion and homeware retailer Mr Price reported that its online sales for the period ending April 2022 grew by 48.2% and contributed 2.9% to total retail sales.

The Foschini Group’s full-year results for the year to end-March 2022 showed an 11.7% growth in online retail turnover, raking in R4.4 billion and contributing 10.2% to total group retail turnover.

Retail group Massmart for its full-year results ended December 2021, reported that online sales for its struggling Game brand grew by 72% in comparison to 2020. Improvements to the website capabilities of Builders and Makro increased online sales by 48.3% and by 18.6% respectively during the period.

Low growth

“Most of our bricks and mortar retailers have upped their game but of course having another competitor in the market is always going to make things difficult,” says Abraham.

“Particularly from the point of view that in South Africa we’ve got very low growth, so if you want to cut another slice out of that shrinking pie, it makes things that much more competitive for everyone.”

According to Statistic SA, gross domestic product (GDP) grew 1.9% the first quarter of 2022. Its data for retail trade sales in April 2022 showed a 3.4% increase year-on-year, driven by positive growth by retailers in household furniture, appliances and equipment, and retailers in textiles, clothing and footwear.

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Amazon obviously hasnt learned a lesson from Walmarts South African endeavour! Good luck to them…competition in the space is great for the consumer, hopefully for SA manufacturers and Distribution companies too but hold onto your hats…this could be a bumpy ride!

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