South African e-tailers say they are still confident that Internet shopping will take off in this country despite the telecommunications challenges.
Arthur Goldstuck, MD of Internet research company World Wide Worx, says his annual online retail survey, due to be released tomorrow, shows some growth, but a dramatic slowdown in that growth.
"Most executives we interviewed are optimistic about the long-term but frustrated in the short-term. Most of them blamed lack of rapid growth on limited and expensive bandwidth in SA," Goldstuck says.
Gary Hadfield, marketing manager of kalahari.net, says local online retailers are still showing healthy growth, although this growth can not be compared to international statistics because of the South African market`s size and telecommunications challenges.
Hadfield was responding to a report by US online retail information site shop.org, which says international online sales (excluding travel) grew by 34% last year.
According to the shop.org survey, operating margins for US online retailers collectively reached 21% and almost 80% of all online retailers were profitable. In the US, 6.6% of all retail sales were expected to be online this year compared to 2003`s 5.4%.
South African e-tailers do not achieve the profit margins their US counterparts are able to.
Sales boost
Kalahari.net has seen a 40% increase in sales in the first two months of its financial year (starting April) compared to the same period the previous year. The company says this growth can largely be attributed to keeping costs down while increasing customers and average basket sizes.
Kalahari.net`s outsourced warehouse, similar to the model that its giant US contemporary, Amazon.com, has implemented, is one of the cost saving mechanisms it has put in place.
"Because kalahari.net`s business model is to not keep stock, our warehouse plays a very important role in monitoring the arrival and distribution of orders," Hadfield says.
The survey indicates that the next growth areas in e-commerce will be health and beauty, flowers, gifts and cards, and apparel. Because SA is lagging behind international trends, kalahari.net says books and music are still the most popular categories for online shopping.
Growing flower orders
However, kalahari.net has experienced success through its partnership with NetFlorist, selling flowers and gifts on days such as Mother`s and Father`s Day.
NetFlorist is also encouraged by movements in the consumer e-tailing space, with 75% of its orders coming via the Internet site. It experienced its biggest month ever in May 2004, delivering over 7 000 orders, a 40% growth on 2003. It says it has become SA`s largest flower and gifting service online and offline, proving that South Africans are feeling more comfortable and confident to transact over the Internet.
Ryan Bacher, GM of NetFlorist, feels confident about the future of consumer e-commerce in SA. "We are very excited about the new bandwidth options coming into the market - this has been a major stumbling block towards reaching critical mass for all e-tailers and will help the market tremendously."
Bacher says he is also encouraged by the improvement in customer service on the Internet. "In the dot-com era, too many `fly-by-nighters` were operating and providing less than desirable service and in turn, tarnishing the reputation of the e-commerce industry."
Bidorbuy.co.za MD Andy Higgins echoes the positive sentiments of other e-tailers. "We`re showing consistent growth off a relatively small base at the moment, but we`re very bullish about our business in the years ahead."
Higgins highlights some growth challenges, including the fact that South Africans appear to shop based on price, rather than convenience. "This is why a site like bidorbuy.co.za does well, because we compete purely on price," he says.
Higgins adds that there are barriers to entry such as the cost of Internet access and users` Internet experience.
Paying the piper
According to CyberSource, the more payment methods offered by e-commerce sites in North America, the higher the sales conversion.
Hadfield says the same applies in SA. "Kalahari.net offers six different payment options and continuously tries to add to this. Although the majority of payments are still by credit card, our electronic transfers, eBucks and bank deposits are proving to be very popular and definitely contribute to our sales."
Also moving towards international trends, the e-tailer recently introduced free delivery on orders over R250 and 24-hour delivery on selected products.
"Lack of instant gratification is one of the things that online shoppers see as a disadvantage of online shopping and we`ve made the decision to address this by introducing 24-hour delivery on our top 20 DVDs and top 50 CDs," Hadfield said.
Hadfield says that although the e-commerce growth rate is slower at the moment, SA will definitely follow international growth trends. But there is work to be done, especially on the telecommunications side.
"The introduction of cost-effective broadband Internet in SA and the deregulation of the telecommunications industry will have a significant impact on the uptake of e-commerce in SA," Hadfield says.
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