South African e-retailers had a record-setting Christmas season, but analysts warn that the novelty might wear off soon and that buyers could revert to more traditional methods of buying. Local portals and merchants, however, saw tremendous growth during December and most are planning to expand their services.
Electronic commerce service provider ECnet says the value of online transactions handled by its portal increased by 762% in December 1998 compared to December 1997. Online sales for the same period increased by 331%. ECnet provides an outsourced service to merchants such as Incredible Connection Online, CD Web and the Sabi Sabi game reserve, and the site serves as an e-commerce portal.
"These figures indicate a significant growth of e-commerce in the South African market over the Christmas period," notes a recent ECnet press release.
December was a good month for the company, with sales increasing by 39% between November and December, and the value of transactions increasing by 30%. "However, this is still coming off a relatively low base of online shoppers in South Africa," says ECnet.
Computer goods and CDs were the most popular products during the festive season. There was also a significant increase in the number of online services used, such as reservations and account payments.
ECnet believes the figures indicate that consumers are more confident to purchase goods over the Internet, and that it is also a reflection on the wider range of products available.
"There is no doubt that Christmas 1999 will see a far greater number of online shoppers. There will be many more online stores launched during 1999 that will be ready to open their virtual doors, and far greater enthusiasm by shoppers to take advantage of the convenience that Internet shopping provides."
Newcomers rake it in
Smaller and newer players in the e-market also saw encouraging figures, which belies the belief that small margins make the market inaccessible. Wine reseller Cybercellar, a newcomer to the industry, had a bumper month. The company sells South African wines online and does not have physical shopping premises.
Hosted by M-Web, it was started "during middle December", according to Fiona Phillips, the proprietor. "Yet we had a turnaround of between R10 000 and R12 000," she says. US shipments to a wine tasting group in Minnesota and another to a buyer in California helped push sales up.
"We always wanted to open a purely Internet-based store," Phillips says. "With the low overheads it is possible for us to show a profit within half a month of opening."
Phillips plans to expand the site considerably by providing more information about the wines on offer, increasing the range, and including events and happenings in the South African wine arena.
Kalahari.net, a division of Nasionale Boekhandel (Nasboek), faced a different Christmas season. "Our experience over the festive season has been in line with that experienced by retail in South Africa. It wasn't exactly fireworks," comments John Relihan, GM of Kalahari.net. He attributes lack of sales to high interest rates, the scarcity of disposable income and the fact that office Internet users were on holiday.
"We are, however, not particularly perturbed by this. We will grow our business along with the Internet. We are encouraged by the steady growth in visitors and customers, particularly from abroad," he adds.
M-Web is reluctant to start celebrations just yet, but Christmas e-commerce had a definite impact on its figures. Eddie van Rensburg, operations manager of M-Web business solutions, says online mall traffic was just short of double the normal. Sales figures are not conclusive, however.
"There was definitely trade, but a lot of our merchants only came online in October and November, so it is not possible to say if this increase was due to festive season shopping." As for 1999: "We are working and doing some very clever and special things for next year."
Incredible Connection also enjoyed record traffic and sales at its e-retail site. Traffic rose 400% between December 1997 and 1998 and sales increased by 100%. This trend is set to continue as an extensive banner campaign is being run to promote Incredible Connection Online at most local high traffic sites.
Global potential
International results seem to support the view of a long-term growth potential in e-commerce. America Online reports that its members spent $1.2 billion online from 25 November to 27 December, while Amazon.com says it increased fourth quarter sales by 279%, from $66 million last year to $250 million this year.
But local analyst Raz Cohen from Southgro Projects warns that figures could be misleading. "It is difficult to be sure of statistics as there is a lot of posturing in the market," he notes. "You have to separate the hype from the reality, and I would like to know if any of these companies really made any money over the Internet. While it might be cheap and easy for companies to run e-commerce, the consumer benefits very little as it is still faster to order a product over the telephone than over a dial-up connection."
He also sees limited product range as an obstacle to unlimited growth. "You won't buy your bread over the Internet, or a pair of shoes. Most products rely on touch-and-smell to sell themselves rather than relying only on a mountain of information. This limits the range that can ever be offered over the Internet."
So e-commerce won't mean the end of more traditional stores and channels? "No, definitely not," believes Arthur Goldstuck, whose company Media Africa recently concluded a survey on South African e-commerce.
"In the short to medium term it will become an important alternative channel for sales. In the longer term it will become a crucial component of the overall sales strategy, as it will become difficult to distinguish between e-commerce and traditional channels."
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