Brick-and-mortar retailers are losing ground to pure play and international rivals as South African consumers display a greater-than-expected tendency to shop online.
Online retail has not taken off to the same degree in South Africa as it has in some of the more developed markets, encompassing only approximately 0.5% of the total retail market, in comparison to around 8% to 10% in the US and Europe. This has caused many local retailers to all but dismiss the online channel as an unnecessary expenditure, claiming that a distinct lack of Internet penetration means the average consumer is not really geared up for online purchasing at the present time.
However, a new survey, conducted by UCS Solutions, indicates that South African consumers are in fact a step ahead of these retailers, with many far more educated in the ways of online transacting than most local retailers have given them credit for.
More critically, the survey also indicates that a large percentage of those who are transacting online are purchasing from pure play retailers or even from international companies. This, in turn, translates directly into lost earnings and market share for local brick-and-mortar players.
According to Wayne Toms, Head of Strategic Projects at UCS Solutions, the survey was conducted with a view to gaining a better awareness of shoppers' views of online retail and to determine the percentages that made use of such portals. To this end, consumers in Johannesburg and Cape Town were asked to participate, with the study split between the suburbs, city centres, taxi ranks and townships. This ensured a wide diversity of participants.
Key consumer groups
Toms points out that, apart from those consumers who have no Internet access and limited payment access, there are three other key groups of shoppers to take into account. The first of these are the Next-Generation shoppers, a group comprised of an approximate 55%:45% split between township- and suburban-based consumers.
A full one third of this group already have both Internet and payment access and, says Toms, with the growing adoption of smartphones, enablement will become less of a problem in the near future.
"The second group, New Spenders, tend to be more savvy consumers - they are young and well-connected and some 85% have access to Internet and payment facilities. Moreover, they tend to use a variety of online services already, including banking, media and airtime," he says.
"However, commitment to a purchase is not as strong with this group, of which at least 60% tend to go online for product and price information, while only 25% actually proceed to the checkout. Nonetheless, this suggests retailers should certainly ensure that, at minimum, they have an online presence, since many of these consumers who browse prices and products online come into the store to complete the purchase. This indicates that a number of in-store purchases are the result of the sale effectively being made online initially."
The final segment are the Seasoned Shoppers, who are a confident and demanding group that is 'Internet savvy' and tends to be slightly older (average 32). They are big spenders outside of traditional retail, averaging around R550 on an almost monthly basis. This is spent on a wide variety of products from more than 60 retailers.
Furthermore, adds Toms, they are more likely to press the 'checkout' button, and because they are confident and in control, they are less concerned about security and delivery issues. Their main concern, he says, is on attaining higher levels of customer service and experience.
"In other words, these individuals seek a more experiential level of service. This means they seek contextual information around the product and curated content, such as, for example, the best way for a client to install a home theatre they may purchase."
The real danger
Probably the most pressing concern highlighted by the survey is not the fact that consumers are far more Internet savvy than most major retailers gave them credit for, it is the fact that, when asked to name their favourite places to shop online, those surveyed named seven pure play retailers in the top 10.
"This suggests that as more shopping is done online, more and more consumers are moving away from the established brick-and-mortar retailers and instead spending their money with virtual stores. When this is coupled with the fact that a growing number of international players - including GAP, Next and French Connection - are providing free delivery options to South Africa, it is clear that local retailers without an established online presence are facing competition from all sides," says Toms.
"The only conclusion that can be reached is that, by all but ignoring the online channel for so long, our local retailers have allowed international competition and pure play operators to steal a march on them."
Toms suggests that, to change this, the first imperative is for local retailers to ensure they have an online presence of some kind. Moving forward, he adds, they will have to ensure consumers can make purchases online. "It is all about meeting the customers where they are and earning their trust," he states.
"Of course, the logistics of online retail can be tricky, so the focus should initially be placed on commoditised products, which sell the most effectively online. In addition, it would be a good idea to cultivate a social media presence, as positive blogs, tweets and posts from customers also help to build consumer trust."
High-quality content is equally important, adds Toms, and of course pricing is far more important in an online environment, with delivery charges a major concern for customers. Providing selective free delivery is thus one way of building trust in this area.
"Because of the complexity of online retail, many retailers may ask why they should do this instead of simply opening a new brick-and-mortar store. The answer is simple: you need to be online, because your customers are shopping online, and if you don't have a presence, they will not think twice about shopping at a competitor.
"In the long run, we are talking about a fight for market share, not a fight for cost containment, so spending a bit more now will be worth it in the long run. Think of it as paying your school fees. It is vital to ensure that when your physical stores start to lose out to online - and they will - they are only losing out to another part of your own value chain. Whether consumers are spending their money at your store virtually or physically, it doesn't matter, it only becomes a threat when they are spending it with your rivals instead," he concludes.
Share