Smooth upward trajectory for SA e-commerce

Johannesburg, 31 Jan 2014
South Africans are steadily gaining confidence in e-tailers.
South Africans are steadily gaining confidence in e-tailers.

Despite the country's relatively low Internet penetration, online retail in SA is set for steady growth in 2014 and beyond.

This is according to World Wide Worx, which monitors the local e-commerce landscape on an annual basis, in conjunction with MasterCard.

World Wide Worx MD Arthur Goldstuck says online shopping has stayed in line with forecasts over the past few years - slightly surpassing expectations for the year gone by. "Our forecast for 2013 was that the online retail market would be worth R4.225 billion, but it will probably come in at about R4.4 billion when we have concluded our research."

The growth, says Goldstuck, is driven by what he terms the digital participation curve - based on which last year was the year SA really saw a breakthrough in the online shopping world. "It takes up to five years before new Internet users gain the confidence and experience in the medium to become active participants in the Internet economy. With the number of Internet users having accelerated from 2008, the number of experienced users will begin accelerating in 2013."

At the time of the release of MasterCard's last online shopping survey, Goldstuck said there had been a rapid rise in the number of South Africans classified as active Internet users - those who fairly recently acquired regular access to the Internet - and this meant the country was seeing a larger-than-ever base of users who had never shopped online before.

World Wide Worx's 2012 Internet Matters report revealed the local e-commerce market was growing at a rate of around 30% a year, and showing no signs of slowing down. "In fact, taking into account the fact that a number of major consumer brands and chains have not yet devised comprehensive online retail strategies, the scope for future growth is even greater," said Goldstuck at the time.

Internet users

The 2013 State of Broadband Report released by the UN Broadband Commission in September reveals just over a quarter (25.5%) of South African households have Internet access - slotting the country at fifth place on the continent, 44th among developing countries, and just above the 24% average for the 128 developing countries measured in the report (for household Internet access).

Regarding fixed broadband penetration, the report ranks SA 111th worldwide, with 2.2% of people having fixed broadband subscriptions - well below the global average of 9.1%.

For mobile broadband, however, the report paints a different picture - most likely because of the growing number of smartphone users in SA. In this arena, SA comes in at 62nd place worldwide with a connection rate of 26% ? compared to the global average of 22%.

Niche captive

Last year saw numerous online players taking advantage of the country's growing online base, the ever-increasing confidence in online shopping, and witnessed them getting creative and capturing a niche market - a recipe for success, says Goldstuck.

"One thing that pushes online retail past forecasts and the natural growth that is almost built into the system is when companies come up with innovative approaches to persuading new customers online. Marketing is only part of it. There has to be innovation as well."

Goldstuck cites Zando as a case in point: "For example, Zando introduced a service where shoppers could try an item on when it arrived, and send it straight back if it needed to be exchanged.

"This was no game changer, but is enough of a change to attract new customers and get people to shift their shopping to online."

Group buying is another example, says Goldstuck, noting that online shopping trends tend to happen in stages. "Most of those group buying sites have vanished now.

"Then there is the example of the international aggregation model that allowed users to purchase items from overseas in rands."

Another driver of online shopping, he points out, is the heavy investments traditional retailers are putting into their online presence. Goldstuck names Woolworths and Mr Price as prime examples.

"One of the other drivers we saw last year is a lot of high fashion stores coming online with compelling offerings. This was largely driven by Zando, but also includes Superbalist (formerly Citymob), Spree and Runwaysale."

Ultimately, while new players are entering the market all the time - and traditional players are taking their bricks-and-mortar offerings to new, virtual heights - South Africans are being drawn in by the enhanced experience companies have to offer to keep up with their competitive counterparts, Goldstuck notes.

In light of these factors, he says, the 30% to 40% year-on-year growth of the e-commerce market in SA will continue to see healthy growth. Each year, the festive season accounts for about 20% of the overall market, notes Goldstuck.

Gradual growth

ITWeb spoke to some of the newer entrants - and some of the traditional retailers who are investing in online offerings.

Style36, which launched in January last year, says it has already experienced huge growth. The online fashion retailer is run by Africa Internet Accelerator (AIA) and steady growth is predicted for 2014.

Tanya Horak, AIA's brand co-coordinator, says 2013 ended on an upward curve for Style36. "We ended off the last year on a great high by becoming the most visited fashion retail site in the country."

Google's year-end Zeitgeist list, which shows the most searched Web sites around the world, placed Style36 in fifth place for the online shopping category, behind OLX, Spree, Zando and Computicket.

"Style36 has been very fortunate to have had such a successful start in an industry as unpredictable as online retail - especially in an emerging market such as SA," adds Horak. She says low Internet penetration in SA has been a challenge for local e-commerce, but she expects this to gradually change.

Other niche entrants, like Yuppiechef, are also increasingly winning over would-be bricks-and-mortar shoppers. The online kitchen and homeware company says it has gradually grown its product base since its inception in 2006.

Ellen Sinclair, customer acquisition assistant at Yuppiechef, says the company has now moved on from the start-up phase and expects to spread out its operations in 2014. "We are looking to consolidate and continue to grow, including expansion into some new markets.

"We are a few years behind the rest of the world, which means that you don't need a crystal ball to see what is coming up - e-commerce will continue to grab a bigger slice of the overall retail pie, from the less than 1% we have now, to the close to 10% that developed markets are already experiencing."

She expects traditional retailers to shift more of their efforts online. "There is much ground to be taken and many first-time online shoppers to lure over the digital precipice."

Traditional retailers

Office supplies company Waltons has one of SA's longest-running e-commerce ventures, having launched its online retail service in 2000. The company says it will expand its digital services this year "with the adoption of a customised version of the Bidvest Direct procurement system developed by BluePepper".

Waltons' new system interfaces with major enterprise systems to enable ordering, authorisation and invoicing.

The company says its e-commerce venture has been fruitful, with the sector making up 14% of its overall annual turnover.

Woolworths also stepped up its game in 2013, by revamping its online shopping experience in July. When its Web site overhaul was announced, the company said online customers had doubled year-on-year and traffic from smartphones had increased by 38%, while 8% of traffic came from tablets.

Despite this, Woolworths says online sales have accounted for a small percentage of its overall revenue, but expects locals "will become more enthusiastic online shoppers as bandwidth connections become cheaper and faster, and customers become more comfortable with online and mobile shopping".

MasterCard research reflects the growth of Internet and e-commerce confidence in SA, with 58% of survey respondents saying they use the Internet for online shopping - up from 44% in 2009, and 53% in 2010.