Online retail gets real in SA

It’s been 23 years since the first pizza and the first bunch of flowers was sold online. One would think, after all this time, that retailers would know exactly what works and exactly how the digital consumer thinks.

Yet, in shopping-mad South Africa, only 4% of adults regularly shop online. One could blame high data costs, low levels of tech-savviness, or lack of trust. However, that doesn’t explain why a population where more than a quarter of people have a debit or credit card and almost 40% of people use the internet is staying away.

The new Online Retail in SA 2019 study, conducted by World Wide Worx with the support of Visa and Platinum Seed, reveals that growth is, in fact, healthy, but is still coming off a low base. This year, the total sale of retail products online is expected to pass the R14 billion mark, making up 1.4% of total retail.

This figure represents 25% growth over 2017 and comes after the same rate of growth in 2016. At this rate, it is clear online retail is going mainstream, driven by aggressive marketing and new shopping channels like mobile shopping. But it is equally clear that not all retailers are getting it right.

According to the study, the unwillingness of business to reinvest revenue in developing their online presence is one of the main barriers to long-term success. Only one in five companies surveyed invested more than 20% of their online turnover back into their online store. More than half invested less than 10% back.

On the surface, the industry looks healthy, as a surprisingly high 71% of online retailers surveyed say they are profitable. But this brings to mind the early days of Amazon.com, in 1996, when founder Jeff Bezos was asked when it would become profitable.

He declared that it wouldn’t be profitable for at least another five years. And if it did, he said, it would be in big trouble. He meant that it was important for long-term sustainability that Amazon reinvest all its revenues in customer systems, that it couldn’t afford to look for short-term profits.

According to the study, the single most critical factor in the success of online retail activities is customer service. A vast majority, 98% of respondents, regarded it as important. This positions customer service as the very heart of online retail.

For Amazon, investment back into systems that would streamline customer service became the key to the world’s digital wallets.

In SA, online still makes up a small portion of overall retail but for the first time, we see the promise of a broader range of businesses in terms of category, size, turnover and staff numbers. This is a sign that the local market is beginning to mature.

Clothing and apparel is the fastest-growing sector, but is also the sector with the highest turnover of businesses. It illustrates the dangers of a low barrier to entry: the survival rate of online stores in this sector is probably directly opposite to the ease of setting up an online apparel store.

A fastest-growing category that was fairly low on the agenda in the past – alcohol, tobacco and vaping – has benefitted from the increased online supply of vapes, juices and accessories. It also suggests that smoking bans and the change in the legal status of marijuana during the survey, may have boosted demand.

We can expect online retail to fall under the spotlight as never before. Black Friday, a shopping tradition imported “wholesale” from the US, is set to become the biggest online shopping day of the year in SA, as it is in the US.

Initially, it was just a gimmick in SA, attempting to cash in on what was a purely American tradition of insane sales on the Friday after Thanksgiving Day, which occurs on the fourth Thursday of November every year. It is followed by Cyber Monday, making the entire weekend one of major promotions and great bargains.

It has grown every year in South Africa since its first introduction about six years ago and last year, it broke into the mainstream, with numerous high profile retailers embracing it.

It is now positioned as the prime bargain day of the year for consumers, and many wait in anticipation for it, as they do in the US. Along with Cyber Monday, it provides an excuse for retailers to go all out in their marketing, and for consumers to storm the display shelves or web pages. South African shoppers, clearly, are easily enticed by bargains.

Word of mouth around Black Friday has also grown massively in the past two years, driven by both media and shoppers who have found ridiculous bargains. As news spread that the most ridiculous of bargains are to be had online, even those who were reticent of digital shopping are tempted to convert.

The Online Retail in SA report has shown over the years that as people become more experienced in using the internet, their propensity to shop online increases. This is part of World Wide Worx’s model known as the Digital Participation Curve.

The missing factor in the curve is that most retailers do not know how to convert that propensity into actual online shopping behaviour. Black Friday will be one of the keys to conversion.

Online retailers of the year

For clues of what works well in selling to a digital consumer, the new Online Retailer of the Year awards provide clear direction. The judging criteria include trust, innovation, customer service and engagement, digital excellence, product excellence, and the online reputation of the digital store.

Digital learning platform Heavy Chef and Platinum Seed oversaw the judging of the awards, while the Ecommerce Forum of Africa audited the award criteria and results.

Specialist kitchen and homeware supplier Yuppiechef was named SA Online Retailer of 2018, with little-known Clever Little Monkey in second place.

Woolworths and Netflorist shared third place, while startup KAMERS/Makers Online Marketplace earned honours in the start-up category.

Bradley Elliott, founder of Platinum Seed and co-author of Online Retail in SA, said: “With the Online Retailer of the Year awards, we want to recognise those ecommerce operations that have helped to grow the entire sector by engendering trust with online shoppers.”

Arthur Goldstuck is founder of World Wide Worx and editor-in-chief of Gadget.co.za Follow him on Twitter and Instagram on @art2gee