E-commerce growth in South Africa outstripping forecasts

Online retail in South Africa will represent 1.4% of total retail sales in 2018, surpassing the R14-billion mark for the first time, according to new research.

E-commerce in South Africa is starting to go mainstream, according to the findings of World Wide Worx’s Online Retail in South Africa 2019 study, released on Wednesday.

The research, produced with the support of Visa and Platinum Seed, said e-commerce in South Africa will grow by 25% over 2017’s sales, which World Wide Worx said is a “surprise given predictions that online retail growth would slow down to below 20% by 2018”.

“Forecasts have been beaten as a result of massive investments in online retail, aggressive marketing and the rapid uptake of new shopping channels like mobile shopping and Instagram,” the company said.

“Furthermore, most established online retailers have enhanced their digital presence and refined their fulfilment models, while many traditional retailers are starting to see significant growth in their online offerings.

“It is not unusual to see growth rates of between 25% and 50% reported by individual online retailers, with slightly more tempered expectations for 2019 and 2020.”

The result is that growth accelerated in both 2017 and 2018, and only a small dip in the rate of growth can be expected in 2019 and 2020, World Wide Worx said.

Online retail is projected to reach 1.4% of total retail sales in South Africa, based on an estimated R1-trillion to be spent via traditional channels in 2018. The 2% mark is likely to be reached by 2022.

Forecasts

The forecasts by World Wide Worx for the next three years, from 2018 to 2020, show online retail sales more than doubling from 2016, to almost R20-billion, a year sooner than originally forecast in 2016.

“Online retailers in South Africa still make up a small proportion 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 employee numbers. This is a sign that our local market is beginning to mature,” the researcher said.

Seventy-five companies with an online retail store or market participated in an industry survey as part of the project, providing a representative sample of the local overall online retailer population. In total, the survey of South African retailers yielded over 6 000 data points for analysis.

Apparel remains the fastest growing sector in online retail in South Africa 2019, but is also the sector with the highest turnover of businesses. “Apparel illustrates the perils of a low barrier to entry: the survival rate of online stores in this sector is probably directly proportionate to the ease of setting up an online apparel store.”

The highest number of respondents was in the apparel category — 23% of the sample.

A significant impediment to the growth of e-commerce in South Africa is the unwillingness of business to reinvest, the research found. Only one in five companies surveyed invested more than 20% of their online turnover back into their online store. Over half invested less than 10% back.

“This despite a high 71% of all online retailers surveyed who say they are profitable. However, profits in e-commerce are no definite indicator of long-term sustainability. Young online retailers who do not reinvest in the underpinnings of their business may be sacrificing short-term financial gain for long-term survival.”

The single most critical factor in the success of online retail activities, as reflected in this survey, is customer service. No less than 75% of respondents regarded it as highly significant, with another 23% seeing it as somewhat important, giving it a 98% importance rating.  — © 2018 NewsCentral Media