South African distributors and wholesalers will face increasing pressure to lower prices in order to prevent the loss of revenues due to the strong rand and growing e-commerce in an increasingly global market. This is the opinion of Michael van Rooyen, founder of local online bookseller Loot.co.za.
"Historically, the sale of products like books, DVDs and music has always been done through the holder of the distribution rights in this country. With increasingly aggressive pricing by companies such as Amazon.com, however, more and more South African shoppers are resorting to international vendors to buy goods where the local pricing is unfavourable."
From a legal perspective, South African online retailers are at a distinct disadvantage when compared to companies based offshore. "In theory, for cases where we are importing a particular product where local rights exist, we could be forced to procure the product through the local distributor. By contrast, companies based outside this country have no such restrictions and can effectively export goods to this country with impunity. It`s a paradox that the law here could be used to favour offshore vendors above local companies, and this state of events is entirely due to the fact that rights are typically regional whereas the marketplace is increasingly global."
Enforcing rights on local retailers would only aggravate the problem, Van Rooyen believes. "All that would happen is that local retailers would either stop selling these products, or move offshore and out of reach. Either of these scenarios would only exacerbate the problem. The only way to counter this trend and prevent loss of revenues is for local retailers and distributors to cooperate, and for local distributors to set their pricing so as to make the cost of their products more attractive. This implies a shift in dependence from margin to volume for generation of profit. It`s the distributors that set the recommended retail prices, and trade prices are normally determined by applying a discount to that price. We rely on the distributors to set fair pricing. If the recommended retail price is inflated, there is little that retailers like us can do about it."
Up to now, Loot.co.za has restricted itself to books, and with the number of titles available for order approaching 1.5 million, the company offers a greater selection than any other South African vendor. "For the most part, the local book distributors have, in our experience, got it mostly right and the majority of popular books are well priced. However, we still encounter cases where pricing is less than ideal, even for bestsellers."
Van Rooyen quotes the impending Harry Potter book, which will have a recommended retail price of R250, as an example. "This is only about 7% less than the list price that was used for the Order of the Phoenix in 2003, even though the rand has gained over 15% against sterling and 40% against the US dollar since the price for the Phoenix was set in a much more volatile currency market. At the current exchange rate, you will be able to order this book from Amazon.co.uk and have it delivered for about R230 including VAT if it`s the only book on the order, and substantially less than that if it`s the second book on the order. In the case of this particular book, this is a bit academic since local retailers will be discounting the price anyway, but we still believe that more representative recommended retail price would have been around R220."
With Loot.co.za now working at extending its offerings to include DVDs, Van Rooyen notes that there are countless examples where the most popular of releases are priced so as to make it far cheaper for South African buyers to import.
"After all, who in their right mind will buy the local collector`s edition of the Lord of the Rings trilogy for R1 399 when they can buy the same product from Amazon.co.uk for lb37 and have it delivered to SA for another lb4? Amazon`s price is a fraction of what we as dealers would have to pay the local distributor for this product."
Despite the reality, the public perception is often that it is the retailers that are responsible for inflated prices. Not so, says Van Rooyen. "We price very aggressively and our margins are tiny. It`s a real challenge to take a business like this to profitability."
Because the size of the South African market is relatively small by global standards, distributors here tend to stock fewer products than those in the US and the UK, and focus on faster selling titles for obvious reasons. "While we believe that we will always rely on foreign suppliers for the broad range of products, we would like to see locally supplied products providing for the bulk of our sales. For this to become reality, however, local distributors need to be competitive on locally stocked, popular titles."
"With improved connectivity and dropping connectivity costs we expect strong growth in online sales going forward," predicts Van Rooyen. "However, much of that growth will come at the expense of the traditional market. If those revenues are to remain in the country, something will have to be done to give local retailers a fairer chance at competing with the foreign vendors. Relying on customer ignorance is no way to make a profit and is bound to backfire."
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