SOUTH Africa still lags far behind almost all its peers in the Brics economic grouping when it comes to online retail sales, and things will not improve unless internet penetration is doubled.
Euromonitor International found South Africa’s online retail performance to be better than that of India. In South Africa, 0.9% of retail sales are conducted online, compared with 0.7% in India, said Cedric Bra, a retail analyst at the market research firm. Brazil is at 11%, Russia at 4.2% and China at 10.7%.
“Among the major South African retailers, only a handful have set up online stores and the effect on the bottom line is yet to be seen,” said Mr Bra. “Even the two most active players, Pick n Pay and Woolworths, derive less than 1% of their total sales from internet retailing.”
Mr Bra said this was a direct consequence of South Africa’s low internet penetration, with only 11% of the population having access. “It is four times lower than Brazil, although both countries have a similar GDP per capita. South Africa will need to at least double internet usage before it sees an uptick in e-commerce.”
Michael Cotterell, general manager of online shopping at Pick n Pay, would not disclose the percentage of sales emanating from its online business.
“We provide guidance that our level of online sales is in line with the general level of online retail trade in South Africa,” he said.
Peter Harvey, founder and MD of online merchant payment solutions provider PayGate, valued South Africa’s online retail at R2.5bn in 2011 and said PayGate had seen a consistent year-on-year growth of between 30% and 45% in transactions handled.
“I have spoken to other payment service providers and they have seen similar growth, so the value has grown,” he said. “I think that more people have access to the internet now than ever before and these people are starting to explore the option of purchasing online. Smartphones and tablets are becoming more accessible and people are loving the fact that they now have the world at their fingertips.”
Mr Bra also highlighted the potential boost in e-sales presented by these mobile devices. “Mobile technology has taken the limelight from home computers, and nearly 95% of households owned a mobile device in 2011.
“It is expected that in 2013 more smartphones will be sold, more than feature phones, providing a major boost to mobile internet usage. And this is where retailers should focus their attention.”
A spokesman for Woolworths conceded it earned less than 1% of turnover from online sales.
Mr Harvey said it was still early days for mobile applications, as organisations were presently making more money from selling the applications, rather than driving sales through them. But he predicted it would not be long before “application commerce” outpaces traditional commerce.
“It’s going to get bigger and bigger. I think it’s going to show exponential growth in Africa within the short to medium term. Africa is lagging the first world right now, but we have the opportunity to leapfrog old technology and enjoy the benefits of online commerce.”
E-commerce in South Africa accounts for about 0.36% of retail sales, according to a report from Vunani Securities, which estimates last year’s spend at R2.28bn.
Alec Abraham, equity analyst at Vunani Securities, said online retail growth was likely to outstrip total retail growth, though this growth was coming off a low base.
Mr Abraham does not expect online sales to account for more than 1% of total retail sales in the next two years.
The cumulative spending power of the lower-income groups is low and most do not have access to the internet. Growth in online retail among higher-income groups is already well more than 60%.
Mr Abraham believes the greatest opportunity exists for local apparel retailers.
The large South African apparel retailers face limited local acquisition opportunities. Any additional investment in the online channel will support the local offline business and all online retail surveys show clothing, accessories and shoes are often the second or third most-purchased category after books.
Constraining the growth of online retail is a lack of an effective strategy on the part of the retailers, said World Wide Worx MD Arthur Goldstuck.
Most traditional retailers going online do so without doing enough homework and without spending enough time developing a strategy.
“The next big trend is going to be traditional retailers who come on line with a well-thought- through strategy and good execution. Early examples are Mr Price’s integrated approach and Cape Union Mart’s organic growth strategy.”
At first, grocery retailers Pick n Pay and Woolworths dominated online retail. But these companies did not realise how expensive it would be to keep frozen products until point of delivery and underestimated the cost of rectifying errors.
* This article was first published in Sunday Times: Business Times
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