E-commerce market in the country grows rapidly

South Africa’s online e-commerce market was currently estimated at just under R200 billion a year - up from R142bn in 2020 and R90bn in 2019 - and already exceeding pre-pandemic 2025 projections, according to FNB Merchant Services statistics. Photo: Freepik

South Africa’s online e-commerce market was currently estimated at just under R200 billion a year - up from R142bn in 2020 and R90bn in 2019 - and already exceeding pre-pandemic 2025 projections, according to FNB Merchant Services statistics. Photo: Freepik

Published Mar 16, 2022

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SOUTH Africa’s online e-commerce market was currently estimated at just under R200 billion a year - up from R142bn in 2020 and R90bn in 2019 - and already exceeding pre-pandemic 2025 projections, according to FNB Merchant Services statistics.

FNB Merchant Services chief executive Thokozani Dlamini said that e-commerce had been gaining traction for over a decade, and its adoption had been exponentially accelerated by the Covid-19 pandemic.

The sector was originally dominated by digital goods such as airline travel and accommodation, the nature as well as the scale of the e-commerce sector has changed, with restrictions on travel and gatherings pushing consumers to turn to e-commerce for an increasing array of goods and services.

FNB Merchant Services statistics indicated an explosion in the growth and variety of the e-commerce sector since 2019 as before the Covid-19 pandemic e-commerce accounted for 8 percent of total card payment spend in the retail space.

At that stage the sector was largely (35 percent) made up by spend on travel and accommodation (T&A). By the end of last year, e-commerce accounted for 14 percent of total card payment sales with T&A accounting for only 11 percent of that.

Despite T&A restrictions heavily impacting online spend in 2020, total online sales jumped 55 percent that year and another 42 percent last year, driven by increased spend in less traditional e-commerce industries. Excluding T&A, online spend doubled (102 percent) in 2020 and continued its surge last year with another 39 percent in growth.

Transactional volumes were just as robust, estimated at 500 million for last year, up from 200 million in 2019 and 345 million in 2020.

Average purchase values were declining as smaller retail and lower basket items gain traction with purchase values declining 12 percent from R450 in 2019 to R390 now.

FNB Merchant Services estimates that South Africa’s e-commerce market will reach more than R400bn by 2025 on the back of more than 1 billion transactions per annum.

According to Dlamini, not all major retailers were prepared for the sudden change, but those that were successful were the ones who could adopt a fast reliable logistical solution in meeting the delivery demand.

“Key challenges to overcome were consumer trust in the fulfilment of sales where physical products had to be delivered, and logistical solutions to meet spiking demand,” he said.

“Despite the accelerating trend, there is still time for retailers without a digital presence to make the shift, but a lot depends on the industry in which they operate and the nature of their client base.

“Large-ticket items such as household electronics and décor (televisions, dining room sets, kitchen equipment, living room sets) would likely still see consumers wanting the touch/feel/witness experience before committing to an expensive purchase. This highlights the urgent need for retail companies to focus on their omni-channel retail strategy,” he said.

For those that were unable to invest in a professional and specialist digital environment, the lure of a marketplace such as those offered by Takealot, Bid or Buy, Facebook marketplace and similar solutions like super merchants, payment gateways and even banking solutions were the logical next step.

Retailers opting for this digital-marketplace route were generally smaller independent operations who recognised that their client base could be expanded beyond their immediate regional presence without having a bricks and mortar (B&M) presence.

Dlamini said in fact, an interesting result of the shift to e-commerce had been the increasing competitiveness of smaller, independent retailers.

“Larger retailers have bargaining power and with that potentially significantly lower input costs than an SME (small medium enterprises) going virtual, but even so, their digital costs are significantly higher since they need to maintain a unique digital offering while data security is paramount.”

He said larger retailers were compelled to have a brand-specific digital and shopping presence that required extensive day-to-day management and maintenance particularly in the security of payment and customer data.

SMEs did not necessarily have this data security problem as they could leverage off marketplace and payment gateway portals to manage their data and payment risk. SMEs could also specialise, finding niche offerings that counter the need to compete on price

“E-commerce has already exceeded our conservative estimates initially published at the peak of the pandemic, and it is clearly here to stay,” Dlamini said.

“Travel and accommodation are still lagging significantly behind pre-pandemic values and volumes as borders are tightly controlled and travel restrictions remain in place. Even so, we can expect e-commerce to continue its strong growth in the medium term. Millennials and Gen-Z are evermore digitally entrenched and have little or no fear for online experiences, whether social or commercial.”

He said the ability to recognise that window-shopping was migrating to browser-shopping would dictate how future retail develops. Companies that offered the best online experience backed by pricing will become most successful.

“E-commerce should be seen as a natural extension of the consumer’s shopping experience. E-commerce is not a static offering: businesses need to constantly monitor consumer demand dynamics and quickly respond to remain relevant. Retailers should not expect to simply replicate their B&M merchandising strategy for their website,” he said.

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