SA retailers slow to adopt e-commerce
South African retailers are taking a rather cautious approach in rolling out e-commerce.
So says Lee Gill, VP of retail strategy, EMEA, at JDA Software, who notes that local retailers are observing the transition that has taken place in more mature markets; learning from what has worked, avoiding costly mistakes, and shaping this into a strategic roadmap that can create a true omni-channel business.
Globally, Gill says the growth of retail e-commerce continues unabated, with sales exceeding $1 trillion in 2012. The scale and pace of the change has been disruptive, allowing some early adopters to grow market share in the wake of those lagging in the adoption of an online model, he adds.
"The retail market in South Africa has remained largely unaffected by this, but it's only a matter of time before this new retail paradigm emerges, and when it does, it will bite quicker and deeper than that of the pace experienced in more mature markets."
Cedric Bra, retail analyst at Euromonitor International, notes that, despite a very developed and competitive retail landscape, SA lags behind in online grocery retailing and will need to at least double Internet usage before it sees a rise in e-commerce.
He also points out that, among SA's major retailers, only a handful have set up online stores and the effect on their bottom lines is yet to be seen. Even the most active players in the grocery space, Pick n Pay and Woolworths, derive less than 1% of their total sales from the Internet, Bra adds.
According to Simon Campbell-Young, CEO of Phoenix Distribution, many shoppers in SA access retailers' online stores on their desktops, laptops or mobile devices to merely compare and look up prices and specs for specific products, and then still go to the brick-and-mortar shop to actually make the purchase.
"There are various reasons for this - many people still distrust the security of making online transactions. But even those who aren't sceptical about paying online are often still put off by the amount of time it will take to have the product delivered to them and also by the amount it will cost in delivery fees. The postal service in South Africa is often criticised as being too slow and unreliable. Courier services, while faster, are too pricey to be a viable delivery option."
Gill argues that SA is held back for several reasons - markets are relatively small with big geographies in between; people still don't trust the Internet; it is still largely a cash-only economy; while it has critical mass, growth will come from an emerging middle class; and there is low Internet penetration comparative to the size of the economy.
To this end, he says, supporting research also shows that only four out of 10 people still live on less than R1 500 a month, and people access the Internet largely through their phones.
"Where we are seeing growth locally is in areas such as ticketing for events and travel, intangible products such as music, video and book downloads, and general merchandise like DVDs and music. Conversely, areas where uptake is currently low include art, food, alcohol, vehicles and property. That said, the SA maturity curve shows that online retail is growing and we should be prepared for a shift in its favour by 2014. These 'new spenders' are the new savvy consumer."
According to Gill, figures show that 85% of people under the age of 25 have access to the Internet as well as online payment facilities. These consumers also use a number of Internet services and are reported to spend an average of R500 every two months on books, music, DVDs and gifts, he adds.
However, he says there are still a vast number of local consumers who use the Internet as a storefront to look at the products they wish to buy, but still purchase in store. This is supported by figures that show that only 25% of consumers make it to checkout after viewing products online, he notes, adding that traditional brick-and-mortar retailers are also suffering, as the percentage of people spending in store is less than 50% of the "new spenders" group.
"Local retailers still have time to adapt, but the time is fast contracting and those who do not embark on the online journey are under threat by pure-play online retailers as well as online first movers, often referred to as the Amazon Effect."
In the US, Walmart, which boasts 121 million customers, saw some 46% of overall holiday shoppers spend their money at Amazon during the holiday periods, says Gill. Closer to home, the number of South African holiday shoppers reaching for their keyboards, and spending at one of the popular local online retailers, reached a staggering 65% due to factors such as a three-day delivery promise, Gill explains.
Concluding, Gill says South African retail is in a good place, the omni-channel curve is taking shape and much can be learned from others. "The question is when to execute; is it now as a first mover, where the small scale of demand allows for learning, or later, when others have grabbed market share?"