Amazon’s big challenge in South Africa
While eCommerce has seen significant growth, South Africans still largely prefer in-person shopping. This means newcomer Amazon will face an uphill battle when it launches in the country.
South Africans’ preference for in-person shopping was revealed by Redefine Properties’ 2023 results, which showed continued improvement in operating metrics across the JSE-listed Reit’s South African retail portfolio.
Redefine reported strong letting activity and high tenant retention (92.1%) in 2023, with active occupancies of 93.6% and an improvement of rental reversions from -8.6% in 2022 to -4.1% in 2023.
Redefine’s National asset manager for retail, Nashil Chotoki, said foot traffic has increased in larger-format retail centres as customers return for the convenience they provide – a one-stop shopping experience.
“Although eCommerce has grown tremendously due to Covid-19, South Africans have returned to shopping centres over the last three years,” he said.
“This has led to a rise in foot traffic, a decrease in vacant spaces, and an increase in retailer turnover at malls around the nation.”
Redefine’s 2023 festive trading update states that during November and December 2023, foot traffic at large-format malls surpassed that of smaller convenience stores, with a 6.3% increase in foot traffic when compared to the same period the previous year.
Overall, foot traffic across Redefine’s retail portfolio during this period exceeded pre-Covid levels.
“South Africans still value in-person shopping, especially at one-stop centres that offer access to everything in one location,” said Chotoki.
“Due to the inflationary environment, consumers’ disposable income is still under pressure, which has led to a significant focus on essential pharmacies, supermarkets, and value fashion retailers for spending.”
Looking ahead, Chotoki predicts the retail sector will continue to grow as interest rates in the country start to decline and consumers have more disposable income.
“Retailers who provide good value will continue to do well,” he said.
“Interest rates may start to decline, but purchasing habits won’t instantly shift. Customers may continue to be frugal with their spending because some habits have become ingrained.”
This data comes when Amazon is set to launch in South Africa this year.
Therefore, when it comes to South Africa, the eCommerce giant will not only need to take on the incumbent Takealot and other established players but will need to convince many South Africans to switch over to online shopping.
Discovery Bank’s SpendTrend24 report, compiled in collaboration with Visa, recently revealed that South African spending online is growing five times faster than in-store spending.
However, it also showed that local shoppers still enjoy visits to shopping malls and engaging with items physically, with the immediacy of a physical purchase remaining attractive.
Bob Group managing director Andy Higgins previously predicted that Amazon’s growth in South Africa would take longer than expected.
Higgins said one can never discount Amazon as they are the world’s most recognisable eCommerce brand with tremendous resources and skills.
Therefore, many marketplace sellers would expect Amazon to come into South Africa and perform miracles from the get-go.
“It will be wonderful for the local market if they do indeed perform miracles and grow eCommerce adoption in the country,” he said.
“I hope that Amazon’s launch in South Africa will uplift eCommerce and help everyone in the market.”
However, Higgins cautioned that it will likely take Amazon longer than most people think to establish extensive online operations.
Amazon has what it takes to compete against the likes of Takealot and Bob Group, but it does not mean there will only be one winner.
“There is space for many large online marketplaces, which is the case in countries like Brazil where many marketplaces are thriving,” he said.
“In South Africa, we may see a future where there are multiple successful eCommerce players and online shops.”
Having said that, Higgins expects that there will still be one player which dominates the eCommerce sector in South Africa.
“I believe local skills and expertise will outperform international resources, which means it will be difficult for Amazon to beat Takealot,” he said.
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