Big upturn predicted for online retail

The total spent on online retail goods in SA in 2007 is expected to be R929 million, up from R688 million in 2006, according to “Online Retail in South Africa 2007” by World Wide Worx.

These figures exclude the sale of air tickets online, which continue to dwarf the numbers for online retail. The five SA airlines selling tickets online, namely kulula.com, FlySAA.com, Mango, 1Time and Nationwide, between them accounted for R2.3 billion in e-commerce in 2006, almost four times the size of conventional online retail. The figure is expected to rise above R3 billion in 2007.

Dramatic turnaround

These numbers indicate a dramatic turnaround in online retail in South Africa, which appeared to be stagnating in 2005. The 2006 recovery is being sustained in 2007, with all indications being of even more dramatic growth in 2008.

“There are two major factors behind this growth,” says Arthur Goldstuck, MD of World Wide Worx. “The first is the rise of broadband, which by the end of next year will see more than a million users in SA.

“The second is a phenomenon called the Experience Curve, which shows that only once users have been online for around six years are they comfortable with the more challenging aspects of the Internet, such as e-commerce. And the number of people who have been online for six years or more has finally reached the level where it is making a substantial impact in online retail.”

Both of these factors were forecast by World Wide Worx as prerequisites for future growth as early as 2004.

The number of online retail sites has also grown substantially, from 826 in 2005 to 1014 in 2007. This growth has come despite 310 sites – more than a third of those online at the end of 2005 – closing down from 2005 to 2007. However, no less than 498 new sites came online during this time.

Dominated

The online retail market is dominated by 12 sites, which between them account for more than three quarters of online retail sales in South Africa, according to “Online Retail in South Africa 2007”.

“There have been many competitors to these dominant players,” says Goldstuck.”They tend to look at the numbers reported by a Pick 'n Pay or Netflorist, and imagine there is a big market ripe for the picking, not realising just how much infrastructure, development and market knowledge has contributed to those dominant positions. The result is that the biggest drop-off of online retailers occurs precisely where the biggest players are active.”

They are the three major malls, M-Web ShopZone, the eBucks Shop and Digital Mall; the two largest online grocers, Pick 'n Pay Home Shopping and Woolworths; the two largest online book retailers, Kalahari.net and Exclusive Books; the largest online florist NetFlorist; the largest online wine retailer Cybercellar; the largest online electronics store Digital Planet; the largest online health and beauty store, Ascot Direct; and the largest auction site, Bidorbuy.co.za.