How Amazon is on verge of disrupting SA e-commerce
Market dynamics in for shake-up but unclear how company will deal with fulfilling orders
Amazon’s keenly awaited entry into SA this year is expected to disrupt the dominance of Naspers’ Takealot, the logistics infrastructure of which gave it a big competitive advantage.
Despite Amazon’s deep pockets, rival Shein has already made inroads. How could this cocktail affect the dynamics in the market?
In October, Amazon.com announced it will launch an SA store in 2024 and that local sellers could register before the launch.
“SA’s e-commerce evolution, driven by factors such as increased internet access and innovative payment methods, is reshaping how people shop.
“With the impending launch of Amazon in 2024, the conversation about the future of e-commerce in the country has intensified,” Mishaan Ratan, co-founder of local e-commerce platform Rentoza, said.
Jeff Bezos’ group will pose the biggest threat to the dominance of Takealot, SA’s largest e-commerce player, and challenge traditional retailers as more South Africans shop online.
The e-commerce giant was previously expected to start operating in SA in 2023, but those plans appear to have been pushed out.
World Wide Worx figures show e-commerce in SA topped R55bn in 2022.
The firm finds that since the pandemic e-commerce has grown explosively in online grocery and clothing shopping, a big change from a time when products such as consumer electronics dominated the space.
Though growing, online retail is still seen as a small piece of the overall retail pie, estimated to be worth more than R1.3-trillion.
Yet the stakes are still high. Outgoing Naspers CEO Bob van Dijk warned recently that new competition regulations could give Amazon an edge over local e-commerce firms in a growing retail sector.
At the beginning of August, the Competition Commission, which launched an inquiry into the digital economy in May 2021, called for Takealot to split its marketplace and retail businesses.
The watchdog said the separation is necessary to prevent Takealot from favouring its own products over those of third-party sellers and to create a level playing field for small and black-owned businesses.
Amazon says more than 60% of its sales are from independent sellers, including small- and medium-sized enterprises (SMEs). Such sellers already take a large chunk of Takealot’s SA business.
The US group will provide another channel through which SMEs can drive sales.
“These trends show that the market is evolving and becoming more competitive. But it’s not necessarily bad news for SME retailers,” Steven Heilbron, CEO of Cash Connect, a unit of JSE listed Lesaka, said.
“It’s also an opportunity for them to grow by exploring new channels to market. Those that can be agile in every aspect of their business model, from their pricing through to their product range, will thrive.”
Heilbron says the “Amazon effect forced retailers worldwide to up their game. Retailers should understand and press on their competitive advantage. For some, that will be their local point of presence and ability to offer personalised, face-to-face in-store experiences that e-commerce stores can’t replicate.”
While much of the attention on Amazon in SA focused on its competition with Takealot, Chinese online fashion retailer Shein has already cemented its place in the SA market.
Shein is consistently among the top smartphone app downloads in SA, alongside social media apps like TikTok.
The company, which is gearing up for a US listing, was last valued at nearly $70bn (R1.3-trillion).
It is estimated that there are 250,000 Shein shoppers in SA, according to Marketing All Product Survey (MAPS) figures referenced by Mr Price.
It has long been suspected that Shein, thought to have overtaken the value of fast-fashion retailers H&M and Zara globally, is growing in SA.
It has high website traffic numbers and app downloads. MAPS data now gives a clear indication that the retailer is sizeable locally.
From June 2022 to July 2023, MAPS fieldworkers asked 20,000 individuals, who make up a representative sample of SA consumers, if they had shopped recently and where they bought clothing.
The survey indicated Mr Price is the clear fashion leader in SA, selling to almost 4.4-million shoppers, while Shein sells to 247,774.
Shein does not come close to having as many customers as Ackermans, Pep, Sportscene, Truworths, Jet and Woolworths, but sells to almost the same number of shoppers as discounter Power Fashion and 30,000 fewer than women’s-wear retailer Foschini.
Amazon has for years largely stayed away from investing heavily in the African market due to poorly developed infrastructure that would make it difficult to implement its famous next-day delivery service.
That lack of investment has so far given local e-commerce players such as Nigeria’s Jumia and Takealot a huge leg up in their respective markets.
What remains unclear, for now, is how Amazon will deal with the logistics of fulfilling orders. Will the company build its own network of cars, bikes, vans and drivers as it did in the US?
This is the approach that Checkers Sixty60 has taken.
Alternatively, the company could outsource to specialists such as Karooooo’s Picup or Uber, which deliver goods for other businesses.
In addition to the e-commerce threat, Amazon will be in direct competition in SA with traditional retailers such as Walmart, the world’s biggest grocer.
Massmart, owned by Walmart, put a lot of money and effort into improving its online sales and designing its Makro website to enable third-party sellers to sell goods online. — BusinessLIVE
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