SA lags in the e-commerce race

Why is SA behind in the e-commerce race?

In the last two weeks I have had a number of people ask why I think SA is behind in the e-commerce race, specifically the consumer or online sales sites.

The first part of my answer was a question, "are we behind?" To answer this, one has to look at the number of online sales sites in SA and the percentage of consumer rands being spent there. Although there are a few significant online sales sites, and various "malls" are beginning to take-off, we haven`t seen anywhere the sheer numbers the US has in online commerce sites. Although most online retailers report a dramatic increase in the money being spent, it is still a small fraction of a percent of total consumer spend.

If we want online shopping to succeed then we need to get to the millions of people who use private label cards to shop and pay by credit

So back to the original question as to why we are not making huge gains in the online commerce area. It really comes down to five main issues: low number of potential online buyers, lack of direct mail culture, poor postal service, access to credit cards, and security and privacy concerns.

Most research houses quote 1.5 million online users in SA, roughly made up of 450 000 dial-up, 700 000 corporate and 350 000 academic/other. Consider though that there are a high number of corporate users who will also have a dial-up connection at home, and browser access is restricted at a lot of companies. Also factor in that only LSM 8 households are expected to join the online purchasing bandwagon.

All this added up says that there could be as low as only 200 000 to 500 000 potential consumers who will purchase online. A good measure would be 30% of these people buying online which means possibly less than 70 000 consumers. Is this enough to sustain the huge investments made in online sites?

If a site is very good and gets 20% of all customers, it still only has 15 000 or so total buyers, and for big online sites this is no way enough. However, there are a lot of smaller sites that will survive quite happily on that number of users.

I feel the second issue is the single biggest reason why we don`t have more online sales sites and consumers buying online. This is the lack of a direct mail culture. In countries like the US in particular, people have been buying off direct mail catalogues for over 100 years. Companies like Sears have built a brand on a direct mail service. The goods supplied for direct mail were delivered fast, were cheaper and good quality. Lots of the products bought in the US by direct mail are purchased because of convenience, and because that was the only route available to get them. They have managed over these years to work out all the legal and logistical issues in supply, payment and guarantee.

But if you look at direct mail in SA it is a very different picture. We have very few direct retailers, the goods are often cheap and nasty, there are horror stories about money being stolen and it is difficult to return unwanted goods. On top of that very few of the large retailers offer a direct service.

As a nation we are suspicious of direct mail/marketing companies and it is not viewed as an area that LSM 8 people would get involved in.

So what does this mean for online selling? In the end online selling is the same process as direct marketing, you buy off a catalogue and get it shipped directly to you, only online you use the Internet while with direct marketing you use the telephone or post.

Our poor postal service gets blamed for a lot of missing mail and South Africans` lack of trust of the phrase "it`s in the mail". A lot of this is historic and there have been a number of significant improvements, but the damage has been done and it will take a lot of work to get people to trust the postal service again. This has meant that in SA we have had to turn to other delivery services, either courier companies or personal delivery services. Both of these work very well but cost more than normal post.

The issue of access to credit cards is a strange one. Almost all online sales sites require you to have a credit card, and I am sure the majority of online users have one, but to extend the online sales sites to the broader population we will need to find some alternative. If we want online shopping to succeed then we need to get to the millions of people who use private label cards to shop and pay by credit. Although they might not be the initial target market for new online connections, when we extend the access with kiosks, TV devices, in-store devices and so on, we expect to get an increase in the number of non-LSM 8 users.

The last issue is one of security and privacy. As a country we are very aware of security and theft. We are very worried about our money being stolen without goods being supplied, our credit card used by somebody else and people selling our personal information for gain.

However, from all reports, the fraud on the online sales sites in SA, from both the retailer and consumer side, has been very low. This does not change the base fear that we are going to become a victim. This is maybe why SA is at the forefront of SET adoption. We are looking for that mechanism to make us feel safe on the Net when shopping.

The five above points are not all the reasons why people don`t shop online; they are just the ones I think are most important. Some of them can be changed very quickly, while the culture issues can only change by experience. We need to be telling people as many positive stories of online shopping experiences so that we can increase the base. This will then bring more retailers online and the effect will snowball.

We also need to look at ways of bringing the broader base of shoppers onto the Internet. This will be difficult but could result in a huge increase in online sales, as there the negative direct mail culture is less prevalent.

At the end of the day, we can only expect online sales to increase, although how we treat the above points could change the rate.