Could e-tail turn out to be retail’s ultimate saviour?

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Going out of business

A recent visit to the Internet Retailer Conference & Exhibition in Chicago emphasised how important ecommerce has become as a sales channel for established markets such as the United States. According to BI Intelligence, a research company owned by online retail tycoon and Amazon owner Jeff Bezos, most of the big retailers in America are facing a massive challenge; brick and mortar retail growth figures are plummeting or stagnating and retailers are being forced to look at alternative methods to turn things around.

A great example to demonstrate the enormity of the recent shift from retail to online is that Amazon is now bigger than the once mighty Best Buy. Most of the big retail groups in the United States are turning to ecommerce to find renewed growth and keep company shareholders happy. It comes as no surprise that in the UK, where 40% of the marketing budget is already online and the online share of retailing is expected to rise from 12.1% in 2013 to 13.5% in 2014, traditional retail outlets are closing at an alarming rate.

The good news, however, is that shoppers aren’t withholding their money from retailers completely; they are just shifting their spending behaviour. Early implementers like Wal-Mart, Best Buy, Gap and JC Penny have already seen significant adoption of their online stores.

Retailers have a massive advantage if they can successfully activate their online sales channel as they are able to fulfil on orders out of their stores, cater for click-&-collect orders and react immediately. They’ll even be able to track abandoned baskets with their Point of Sale (POS) software once they have integrated their Enterprise Resources Programmes (ERP).

South African retail growth figures are still outperforming the American market where retail growth is currently in the negative. According to the Berau of Market Research, South African retail growth figures landed on 2.9% in 2013, and although our local ‘mall culture’ might sustain these one digit growth figures for a few more years to come, retailers should learn from the American example and start selling online if they haven’t done so already.

Another interesting fact to look at is how e-commerce has become the financial investment of choice for the American angel investor. Currently 36% of angel financing is being pumped into the e-commerce industry, which means that they deem the industry profitable enough to make good returns, sustainable enough to take long term gains, and evolved enough to mitigate major risk of losing money.

Already in South Africa we have seen some major investments in recent years and, although kept well under the radar, in 2014 alone some key industry players have received major investments. For example, Cape Town based retailer recently secured a US$100-million cash injection from investment company Tiger Global Management to further expand into Sub-Saharan Africa. More international companies than ever before are looking to set up shop in South Africa to try get a piece of the double digit growth out of the underinvested African market.

The next few months will be very interesting for South African e-commerce. As and when some major, international retailers figure out how to effectively handle cross-border shipping, we might see some new brands and products introduced into our market.

Keep your eye on local companies who have worked through most of their online growth pains, such as Mr Price, which is currently shipping to over 120 countries and have recently introduced a mobile shopping app. This is a great lesson to all retailers that are still tip-toeing around the concept of e-commerce and omni-channel sales strategies: Fortune favours the brave.

Image: Corey Seeman via Flickr.

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  • Warren F

    Cassie, while I do believe that eCommerce is poised to change the way retailers do business and should be doing business, especially in South Africa, one of the biggest challenges we face is distribution. While companies like Kalahari, Takealot, Zando etc. are making ground, the real challenge lies in enabling the micro-e-tailer.

    China have gotten this right, and take top spot this year (Year of the Horse) as the world leader in eCommerce. For them, rising digital penetration and developments of digital banking will sharpen both appetite and ability to purchase everything online. Of course, the determining factors of success are tied in with critical mass and low cost distribution.

    What is required is a low cost, dynamic supply chain, where products can be delivered swiftly with little or no extra cost to consumers and this, coupled with decreasing amount of time available to visit stores physically, will help make online shopping a norm.

    Also, for the smaller e-tailer, setting up an online shop is not always easy. Large costs are associated with setting up merchant accounts with the bank, and the simplest solution for the small guy is to use payment gateways to enable the purchasing of goods using credit/debit cards. FNB/Paypal still do not include the Rand as a supported currency in online transactions, and for many this is a barrier to entry.

    Simplifying the steps to set up an online store, along with a solution to low cost distribution, will have a major positive impact on e-tail.

  • Justin McCarthy

    Looking to the US and UK/Eurozone for clues into how the SA etailI model will evolve is a basic error.

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