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News of popular ecommerce site Takealot’s US$100-million investment round has set South Africa’s tech scene abuzz. Late last week we reported that the site secured a staggering US$100-million from its long time investor, Tiger Global Management.
Founded in the 2002 as Take2, the site was later relaunched as Takealot in 2010 by Tiger Global Management and CEO Kim Reid. Takealot offers an extensive range of locally supplied and imported books, DVDs, music, games, electronics and toys with delivery to your doorstep.
In 2012, Takealot acquired a majority stake in delivery company Mr Delivery to launch its same-day delivery service in major cites. Reid commented late last week that both companies “work extremely” closely to ensure that customers get a great service.
This investment is a major coup in the South African tech scene and has had most media talking about its impact on the ecommerce space in Africa. We caught up with Reid to chat about the multi-million dollar investment and the future plans for Takealot.
According to Reid, this investment will help the company solidify its presence in South Africa and improve its logistics technology. He said that Takealot would be “pushing technology” into the business by way of route optimisation and tracking to ensure that the company has more control over the deliveries.
Reid tells us that there is a lot of excitement in the company due to the investment but it also brings with it new pressures on making the company the best in the space. He reckons that ecommerce in Africa makes good business sense, and that the time for ecommerce is now.
Ventureburn: What were some of the key things you did to transform Take2 into Takealot?
Kim Reid: It’s a completely different business. Take2 was about 25 staff members, it had quite a thin layer of management, about 300 – 400 metres squared of warehousing at that stage. It was largely based on an old school ecommerce principle where you’re trying to order based on your customer’s orders instead of holding stock. When we bought the business, (I was obviously with Naspers for ten years) and when Lee Fixel and I met up and decided we wanted to get this thing done, our vision was always (at least from Tiger) to build an inventory-holding ecommerce business. Retail holds inventory, and if you look at the likes of Amazon and all the rest, that’s where we believe the sweet spot of ecommerce is.
We started straight away in recapitalising the business, increasing stockholding, we’ve gone from 25 people to in excess of 220 people. We’ve got about 10 000 square meters of warehousing, which is great, and we’re growing all the time. We bought the Mr Delivery business, which gives us control over logistics. The plain and simple thing was to focus on the customer and execute well.
VB: Do you think the Mr Delivery move was key in taking the business to the next level?
KR: There are a lot of pillars to ecommerce, and logistics is one of them. I wouldn’t say it was a key factor — we have a good staff, we have managed to focus squarely on the customer, and I think that’s one of the key reasons we’ve managed to execute in the market. Mr Delivery has added another dimension to our business because it allows us to do same-day delivery and after hours delivery, but also control from the distribution centre right through to the customer. Courier companies in this country find ecommerce difficult.
The way we’re actually structured in Mr Delivery allows us to be a very good point-to-point delivery service. It has actually grown, so it now delivers Pick n Pay deliveries as well, and First National Bank credit cards. So the business has grown since we invested in it as well. We’re trying to grow the technology around Mr Delivery, because ultimately technology makes a difference and pushes efficiencies through the business, and gives the customer experience that’s required as well. It allows you to track everything. You can anticipate what is going to go wrong, and you can react to that.
Most people are quite reasonable and if you tell them you are going to arrive at this time, and you are actually not going to arrive at this time, and you give them advance notice, they understand that. It’s that type of thing where if you’ve missed that deadline, you’re trying to fight and it just doesn’t work.
VB: You said the new $100-million investment wouldn’t lead to any immediate expansions. But are you looking to invest in other areas that could help Takealot?
KR: We’ve got a very structured business model and plan that we’ve put together, and it’s come through in the last three or four years of operation. We know where we’re going, and we know what cash we will require going forward. The money is great, it gives us a more expansive vision, but it’s business as usual for us. We’re going to continue to invest in the core pillars — logistics, warehousing, technology and people — and we’ll continue to do that to grow the business faster and faster.
We’ll look acquisitions as they come along, but there is nothing in the pipeline right now. Acquisitions on this continent are few and far between in any event, given the state of ecommerce right now. It allows us to think a lot bigger, and also puts the pressure on us as well, even more than before.
VB: We’re seeing a lot of ecommerce businesses starting in Africa recently. Which countries do you think have the most potential?
KR: There’s potential right through the continent. The naysayers of ecommerce I find very strange. If you have a look at South Africa, the retail market right now is in excess of R550-billion. The penetration of online commerce of total retail is anything between less than 1% and slightly over 1% of that. Now, if you look at developed markets like the States and Europe — the UK is predicted to go to 23% of retail in 2016. The US is looking at anything between 14 and 15%. India is growing like anything at the moment on the ecommerce side.
So do we think we’re going to be at 23% of the retail in the next five years? No, I don’t think that. But I do know there is tremendous growth in this. I don’t know where the penetration is going to end. But I do know that the penetration is there. If the thesis is that Africa and South Africa is not going to work with ecommerce, then we’ll be wrong. But I’m happy to take that bet.
Because of the growth that’s happening elsewhere in the world, our thesis won’t be any different. There is a heck of a lot of opportunity. Nigeria is a great market, obviously, and you have Jumia and Konga which seem to be doing okay there. But the rest of Africa is slowly waking up. You may find that ecommerce actually leapfrogs traditional bricks and mortar retail. We don’t know what is going to happen. But is there a part for ecommerce to play on the African continent? I have no doubt. Retail is a really big market to get involved in.
VB: What are people spending their money on online in your experience?
KR: Electronics is growing very quickly. If you have a look at the progression of the business, we were strong in media products (mostly music and DVDs, we weren’t as strong in books) and electronics. We look at it in three categories — media products (DVDs, games, books and music), electronics (which has three or four different departments in it) and lifestyle, which is the rest of our categories, which stretches from baby all the way through to sports, home and kitchen, pool and garden, that kind of stuff.
If you look at it in those categories, media is always going to be a struggle, because media is going digital. I don’t necessarily see a place for us to play in the digital space, with the likes of Apple and Amazon that are there, they have a great range of books and music. That kind of thing is going to go digital, and although we think there is still an opportunity to grow that part of the business in Africa for a while, it will eventually diminish. No doubt about it.
We think our bread and butter is going to sit in delivering physical goods to your homes. So from electronics to the lifestyle products. The electronics side really is growing very quickly.
VB:We don’t see alot of the lower LSM shopping online. Do you think it has something to do with the products on offer?
KR: It could have something to do with the product mix. We don’t necessarily fish in an LSM 4-8 pond, and right now we’re trying to build our business out of 7 and upwards. But we will gradually grow down. We just need to get the model right, get the efficiencies in place, further down the chain your price points drop and then your delivery becomes a more expensive part of the equation.