SA`s online retail revenues doubled last year, says Goldstuck report

Johannesburg, 07 May 2002

South African online retailers with sound strategies have seen more than 100% turnover growth over the previous year, finds Arthur Goldstuck`s latest survey of the local online retail market.

The Goldstuck Report: Online Retail in South Africa, 2002, which will be released at the Brainstorm 2002 conference at Computer Faire in Midrand later this month, surveyed over 270 traditional online retail sites, excluding car or property sales, at the end of 2001. Since a high proportion of these online retailers do not generate any turnover, Goldstuck says that with a 25% response rate, the report reflects 95% of the market.

"The overall growth has been more than 100% over the previous year for those companies that have got a sound strategy," says Goldstuck. "All the big players - the ones that have managed to survive - have done well, doubling their turnover at least."

But Goldstuck says the hefty percentage increase is not a big surprise. "The reality is it came off a very low base. In 2000, SA`s online retail was worth R80 million - it`s an absolute drop in the ocean. So if we don`t see huge percentage growth, the market is in trouble."

The single biggest traditional retailer is the online book and music store Kalahari.net. Other sites that are doing well are online malls: Digital Mall, M-Web Shopping Mall, the Shopping Matrix and Megashopper. Of the niche sites, Cape-based wine retailer CyberCellar did well. "In terms of the size of the operation, CyberCellar`s turnover is very impressive," says Goldstuck.

Goldstuck`s methodology is based on surveying the industry rather than the consumers and the study was conducted via e-mail as well as through direct interviews of the key players. "In this way, I also tend to identify the strategies that succeed, so the report also looks at successful and unsuccessful business models."

The majority of retailers, says Goldstuck, "have no idea how to market themselves online".

"They have created an online retail site, plugged into a transaction engine, and then they sit and wait for the business to come in -- and nothing happens. Those are typically not online-only operators. Online-only retailers tend to be more actively trying to generate revenue and have a marketing budget."

At the bottom of the "no return on investment" scale are sites that have invested as little as R5 000. "At the top of the scale are site owners who spent as much as R40 million and don`t have a hope of ever seeing a return on investment because they over-capitalised based on exuberance rather than on strategy," comments Goldstuck. "That`s the case of sites like Inthebag, which might have had a great strategy in terms of their operating model but in terms of their cost model, they had no strategy whatsoever."

The report finds that by far the biggest challenge for local online retailers, in addition to tight margins, is the high cost of shipping. The biggest growth in terms of number of shops was lingerie, while there`s a definite gap for online clothing sales.

The Goldstuck Report: Online Retail in South Africa, 2002, will be exclusively launched on 24 May during the e-business track of the Brainstorm 2002 conference at Computer Faire, Gallagher Estate, Midrand.

(The conference is organised by ITWeb.)