The fastest growing types of online stores in South Africa

 ·4 Jan 2019
e-commerce online shopping

Online retail in South Africa is expected to pass the R14 billion mark in 2018 as e-commerce begins to go mainstream.

This is one of the major findings from the latest Online Retail in South Africa study, conducted by World Wide Worx with the support of Visa and Platinum Seed.

The 2018 figure – which represents 25% growth over 2017 – comes as a surprise given predictions that online retail growth would slow down to below 20% by 2018.

Forecasts have been beaten as a result of massive investments in online retail, aggressive marketing, and the rapid uptake of new shopping channels like mobile shopping and Instagram.

Further, the report found that most established online retailers have enhanced their digital presence, and refined their fulfilment models, while many traditional retailers are starting to see significant growth in their online offerings.

It added that it was not unusual to see growth rates of between 25% and 50% reported by individual online retailers, with slightly more tempered expectations for 2019 and 2020.

“Online retailers in South Africa still make up a small proportion of overall retail, but for the first time we see the promise of a broader range of businesses in terms of category, size, turnover and employee numbers,” the report found.

“This is a sign that our local market is beginning to mature. ”

Growth in apparel accelerates

The report found that apparel remains the fastest growing sector in online retail in South Africa.

However, it noted that it is also the sector with the highest turnover of businesses.

“Apparel illustrates the perils of a low barrier to entry – the survival rate of online stores in this sector is probably directly proportionate to the ease of setting up an online apparel store,” the group said.

The highest number of respondents were in the apparel category, with 23% of the sample in this category.

The second largest number of respondents fell into the ‘General’ category, at 10.8% – this includes sites like Loot and Takealot, which sell across sectors.

The third largest numbers of respondents are found in four categories — 8.1% fall into each of the following:

  • Arts & Crafts/Decor;
  • Alcohol, Tobacco & Vaping;
  • Food, Groceries, Non-alcoholic  Beverages & Gourmet Food;
  • Home & Garden.    

“Unsurprisingly, a fast-growing category is alcohol, tobacco and vaping,” the researchers said.

“The increased online supply of vapes, juices and accessories suggest that the SA smoking bans, and the change in the legal status of marijuana during the survey, may have boosted consumption.”

Not investing

Despite this strong growth, the report found that a significant impediment to e-commerce in South Africa is the unwillingness of businesses to reinvest.

Only one in five companies surveyed invested more than 20% otheir onlinene turnover back into their online store. Over half invested less than 10% back.

This is despite a high 71% of all online retailers surveyed, who say they are profitable.

“However,  profits in e-commerce are no definite indicator of long-term sustainability,” the group said.

“Young online retailers who do not reinvest in the underpinnings of their business may be sacrificing short-term financial gain for long-term survival.

“The single most critical factor in the success of online retail activities, as reflected in this survey,  is customer service.

“No less than 75% of respondents regarded it as highly significant, with  another 23% seeing it as somewhat important, giving it a 98% importance rating.”

What you can learn from China

Moving from South Africa to the global stage, the report found that customer-centricity is the main reason why the most populous country in the world taking the lion’s share of all online retail e-commerce.

China, with its population of some 1.4 billion people, achieved retail sales of $5.8 trillion in 2017. Online shopping accounted for 19.6% of this total.

The report states that the next decade will see a shift from West to East, as the US share of the global e-commerce market decreases from 22.2% to 16.9% in 2020.

“China will rise, and rise, alongside India and other eastern countries, which will grow growing significantly, and with speed.

“Scale is a  massive driver for the East, but there’s a strategic advantage that’s just as important to the region’s growth.

“The big difference between China and the US? China isn’t debating e-commerce but has embraced a model ideated by Alibaba’s Jack Ma, called the ‘New Retail’.

“This is a human-centred logic that puts what’s best for customers at the epicentre of a massive push to enable e-commerce players, with the understanding that doing this will grow China.

“Making the customer your central obsession, and embracing collaboration over the competition is what ’s winning massive market share for Alibaba, China, its collaborators and retailers following these new rules. Moreso, it is driving growth for Asia.”

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