Never mind the Naspers shutdowns, ecommerce in South Africa has a bright future

I was recently asked whether I felt that the closure of the four online shopping portals — SA Camera, Style36, 5 Rooms and Kinderelo — by media giant Naspers, was an indication that South Africa was not yet ready for online retail and that there was no money to be made in the industry. My answer was immediately confirmed by a Naspers announcement that its intentions were to restructure to focus on its general online store, Kalahari.com.

That’s not to say online retail in South Africa doesn’t present its fair share of challenges. In its report for the year ending 31st March 2013, Naspers reported trading losses of R1.8 billion in its online retail portfolio.

South Africa’s internet penetration in comparison to first world economies is quite low — around 11 to 12% of South Africans have access to the internet compared to over 75% of the population in the developed world. In addition to this, many still want the social experience of shopping in physical stores and have a natural tendency to want to physically see, touch and test products before purchasing them.

South Africa is however constantly developing and online retail is certainly growing at a rapid rate, driven by a number of fairly obvious factors, including:

• Attractive online pricing;
• Increasing internet population further elevated by web enabled mobile devices;
• Increasing confidence in online banking and transacting;
• Advancements in logistics and IT;
• Traditional retailers also providing an online offering.

Although a number of businesses are showing very good growth in the online market, I am not convinced that the traditional models of Amazon and other large foreign online retailers will work in South Africa.

The country’s market is still relatively small in comparison to the rest of the developed world, which makes the working capital requirements and risks associated with holding the required inventory levels prohibitive.

Consumers expect a wide variety and immediate access to products online. I believe that a more tailored approach, similar to Amazon’s third-party marketplace where merchants are able to set up their own virtual stores, trade their products alongside Amazon’s, allowing them to leverage Amazon’s significant customer base and processing services is far more likely to be successful here.

In terms of current online retail strategies, price cutting is not a viable long term strategy and low price is no longer the key factor that affects customers choice. Online retailers need to enhance the customer’s online experience by providing more value added services.

I see an integration of online and offline becoming more and more relevant. This will enable able retailers to lease much smaller sites than the traditional stores, but still offer customers access to a full product offering with next day deliveries on those items not held in-store. This ensures that customers still get the full in-store experience including the assistance and guidance of knowledgeable store staff.

Another core online investment area is m-commerce. With South Africa’s high mobile penetration and rapidly developing mobile capabilities, the country’s mass market may to some extent skip web based retail entirely and move straight onto mobile commerce.