Amazon’s much-anticipated entry into SA this year is expected to disrupt the dominance of Naspers-owned Takealot, the logistics infrastructure of which has been at 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,” says Mishaan Ratan, co-founder of local e-commerce platform Rentoza.
Jeff Bezos’ firm will pose the biggest threat to the dominance of SA’s largest e-commerce player, Takealot, and will challenge traditional retailers as more South Africans learn to shop online.
The e-commerce giant had previously been expected to start operating in SA in 2023, but those plans appear to have been pushed out.
Data from World Wide Worx shows e-commerce in SA topped R55bn in 2022. The firm finds that after 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.
The outgoing Naspers CEO, Bob van Dijk, recently warned that new competition regulations could give Amazon an edge over local e-commerce firms in a growing retail sector.
Drive sales
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 company 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,” says Steven Heilbron, CEO of Cash Connect, a unit of JSE listed Lesaka. “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 that the “Amazon effect has 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 their ability to offer personalised, face-to-face in-store experiences that e-commerce stores can’t replicate.”
While much of the attention about Amazon in SA has 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 just less than $70bn.
It is estimated that there are 250,000 Shein shoppers in SA, according to data from the Marketing All Product Survey (MAPS), figures which has been referenced by Mr Price.
Sizeable operation
It has long been suspected that Shein, which is 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 a sizeable operation locally.
Between June 2022 and 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 had 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 it 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 had done 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 on behalf of 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, which is owned by Walmart, has spent much money and effort on improving its online sales and designing its Makro website to allow third-party sellers to sell goods online.
With Katharine Child
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.