Big threat to local retailers

South Africa’s eCommerce space is becoming more lucrative and competitive, and local retailers need to be strategic to remain profitable and retain market share. 

Online shopping in South Africa is rapidly growing, with sales reaching R71 billion in 2023, a 29% increase from 2022, according to a study done by World Wide Worx.

This trend is set to continue, and the sector is expected to exceed R100 billion by 2026. 

Nedbank explained that this growth in online sales was initially driven by the pandemic in 2020, with more consumers making use of online deliveries during lockdown.

“But since then, consumers have moved even more of their traditional shopping online – partly because we’re more familiar with the process and feel we can trust secure online payment systems,” the bank said.

The country’s major retailers have expanded their online services and used offers, promotions, and streamlined payments to take advantage of this growing industry.

For example, Shoprite Checkers’ Sixty60 service saw a 63% increase in the second half of 2023, while Pick n Pay grew its online sales by 76% and Woolworths by 47%, World Wide Worx revealed. 

“In contrast, the country’s largest online-only retailer, Takealot, grew sales by only 6%,” Nedbank said. 

“The overall growth coincided with a slight decline in total retail sales, which emphasises the huge growth of online shopping.”

Many South Africans have had to become more mindful of their spending due to the country’s economic slowdown and the global cost of living crisis. 

At the same time, the online marketplace is becoming increasingly competitive, offering consumers more choices than ever before.

“As consumers become more proactive and creative in cost-reduction strategies, retailers need to offer more to keep a competitive edge,” Nedbank said.

The entry of international eCommerce giants like Amazon and Shein is intensifying this competition, driving down prices, and increasing consumer expectations for quick and reliable deliveries. 

Amazon, which entered South Africa’s market in May, is expected to give customers more choices, drive prices down even further and create new business and job opportunities in the delivery of goods and order fulfilment.

“It plans to offer a selection of local and international brands across 20 different product categories, for both same-day and next-day delivery, along with more than 3,000 pick-up points and an easy return system,” Nedbank said. 

As an added bonus, customers could enjoy free delivery on their first order and on any future orders over R500.

“Amazon also announced that it will follow its global policy of sourcing and selling up to 60% of its goods from independent small and medium enterprises, which is good news if you’re a small local retailer.” 

“Amazon also offers onboarding tools, payment processing solutions, and promotional features to help you reach customers and boost your business online.”

“Amazon’s presence locally is also expected to make courier and warehousing services more competitive, as they ramp up their offerings to meet increased demand.”

Apart from the American eCommerce giant, South African retailers also need to compete with Chinese companies, which often undercut local prices. 

“Asian online retailers Shein and Temu are among the recent entrants to the South African online market, grabbing market share and increasing pricing pressure on local retailers.”

“China-based Shein was the most downloaded shopping app in South Africa in 2023.”

However, Nedabk explained that this year, the Department of Trade, Industry, and Competition has been investigating Shein for potentially avoiding import taxes. 

“Another Chinese online retailer, Temu, entered the South African market in January 2024, and within 3 months had become the most downloaded app in local app stores, on the back of massive advertising on Google and Facebook.”

Strategies for local retailers

Given this competitive environment, Nedbank gave three suggestions that local retailers can use to remain competitive in the eCommerce space. 

Firstly, it suggested omnichannel shopping – which Oracle describes as “a strategy that aims to deliver a consistent experience for customers over several channels.”

This approach involves businesses using multiple channels – such as brick-and-mortar shops, catalogues, and online stores – that are coordinated and work together seamlessly.

As the NIQ Consumer Outlook Report for 2024 showed, consumers have more choices when using online shopping channels.

“You might see something in-store but decide to shop for it online to take advantage of promotional prices at another retailer,” Nedbank said. 

“The research shows that 35% of South African shoppers already use their phones in-store to help make buying decisions.”

Secondly, since most shoppers are looking for the lowest price, Nedbank suggested using savings as a business strategy.

“Bulk buying when products are on sale, or looking out for discounts and promotional offers, can give you more bang for your shopping buck. Shopping online makes the search so much easier.”

Finally, Nedbank said local retailers need to ensure they offer excellent delivery services. 

“The growth in online shopping has also raised consumer expectations – we now expect whatever we buy online to be delivered quickly and in perfect condition,” it said. 

“This is another big change for South African retailers, as they now need to manage deliveries consistently within narrow time windows.” 

“Grocery chains can generally offer next-day delivery, although Shoprite has introduced their Sixty60 service, and Takealot is trialling 1-hour delivery for tech and other goods.”