Takealot under siege

Over the past few years, Takealot has faced several challenges that have made it more difficult for the eCommerce giant to reach sustainable profitability. To become profitable, it will need to adapt to these challenges.

Naspers released its interim results for the six months through September 2024 on Monday. The results revealed improved performance for the company as a whole but a decline in Takealot’s performance.

“The business continues to face a slow-growing macroeconomic environment and increased competition from new entrants such as Temu and Amazon, impacting Takealot group’s growth,” the company said.

Takealot saw 11% revenue growth and gross merchandise value (GMV) growth of 11%, excluding Superbalist. It sold Superbalist to a South African consortium of retail and private equity investors.

However, the company’s adjusted earnings before interest and taxes (EBIT) fell to a loss of $12 million (R218 million).

This is one in a long string of losses for the eCommerce giant. Takealot has not been able to turn a profit since it was founded fifteen years ago, despite a plan to achieve this important step three years ago.

Between 2019 and 2021, Takealot significantly reduced its losses, giving the market confidence that it would reach profitability in the 2022 financial year.

In June this year, Takealot Group CEO Frederik Zietsman revealed that Takealot.com is profitable for the first time in its history as of the 2024 financial year.

MyBroadband reported that while the Takealot Group – comprising Takealot.com, Mr D, and Superbalist – incurred a trading loss, both the Takealot.com and Mr D businesses were making trading profits.

Zietsman explained that this is the nature of the J-curve in e-commerce.

The principle behind the J-curve is that as a company recovers from its fixed-cost expenditures, it can start to grow rapidly. According to Zietsman, this is the phase that Takealot is currently in.

“You must incur fixed costs ahead of your revenue curve if you are in e-commerce. You expand your fixed cost base for the next 12–18 months, and then you grow into that base,” said Zietsman.

“If you look at Takealot.com, we expanded our fixed cost base post-Covid, then we grew into that base last year, and we made a profit,” said Zietsman.

This could be seen in the company’s HY2024 trading profit, which saw Takealot in the black for the first time.

However, HY2025 saw a significant downturn, with the company back in the red with a significant trading loss.

Several challenges have made it difficult for Takealot to keep up, including its loss-making Superbalist platform, a stricter regulatory environment, and international competitors.

This can be seen in the graph below. It should be noted that Takealot stopped reporting its pure trading profit after HY2023 and started reporting an adjusted EBIT figure, both of which are included in the graph below.

Although Takealot reported a trading profit in HY 2024, the group has never reported its net profit performance, which takes all costs into account, including debt and taxes.

Superbalist

One of the reasons for Takealot’s poor financial performance over the past few years is its Superbalist platform, which was sold earlier this year.

In March this year, Daily Investor reported that Takealot was looking to sell its fashion retailer Superbalist because of increased competition from Shein and Temu.

Takealot’s management was concerned about the threat from low-cost Chinese retailers like Shein, Temu, and Wish, who started to dominate the online fashion market.

Therefore, on 1 September 2024, the Takealot Group announced that it had sold Superbalist to private equity investors.

“This strategic acquisition will support Superbalist’s ongoing growth, allowing the Takealot Group to dedicate its efforts to further expanding Takealot and Mr D,” it said.

Takealot said Superbalist services will continue to operate without interruption throughout the transition period.

Takealot will also continue to provide warehousing and logistics services to Superbalist through a multi-year service agreement.

“Backed by our parent company, Naspers, we are well-positioned to strengthen our market-leading positions in the eCommerce sector,” the company said.

The HY 2024 and HY 2025 revenue figures are adjusted for the Superbalist sale and show the revenue impact that the sale had on Takealot compared to HY 2023.

Global competitors

Several international eCommerce powerhouses have entered the South African market in recent years and have given local retailers a run for their money.

Chinese eCommerce giants Shein and Temu have been particularly impactful, as their wide variety of inexpensive products shifted consumers’ expectations from local players.

In addition, although the international eCommerce powerhouse Amazon only recently soft launched in South Africa, many believe its extensive experience in the field will allow it to easily overtake local players.

Takealot has highlighted the threat these retailers pose to its business and the local market several times.

In June of this year, Takealot warned that new international entrants like Shein, Temu, and Amazon in South Africa’s eCommerce space will cause a net loss for the country. 

“These eCommerce platforms exploit outdated regulations and loopholes by using shipping methods that allow them to offer exceptionally low prices while avoiding duties, taxes and other government fees imposed on conventional retailers,” Takealot said. 

“This hinders government initiatives focused on revenue generation and collection and undermines South Africa’s sense of sovereignty.”

Takealot said this also leaves domestic retailers, both online and offline, at a disadvantage. 

It should be noted that, according to data from the Boston Consulting Group (BCG), Takealot still holds a 15% to 20% share of the South African eCommerce market.

Its biggest competitor, with 12% to 15% market share, is another local player – Checkers, through its popular CheckersSixty60 grocery delivery platform.

The next two spots are held by local retailers Woolworths and Superbalist.

The remaining 45% to 55% is held across several online shopping players, including Makro, Bash, Pick n Pay, Amazon, Shein, and Temu.

Therefore, Takealot is still holding its own against these international giants. However, Takealot said in Naspers’ latest results that it is focused on defending this market share from players like Amazon and Temu.

“The business continues to face a slow-growing macroeconomic environment and increased competition from new entrants such as Temu and Amazon, impacting Takealot group’s growth,” it said.

“The eCommerce business focused on defending market share, adapting to changes in shopping patterns post the end of load-shedding and opened another distribution centre in Durban in September to increase same-day and next-day deliveries,” the company said.

Therefore, while Takealot is still the leader in South African eCommerce, it will need to accelerate its growth significantly to keep the top spot.

The retailer has taken some steps to enhance its offering to local consumers, including a new subscription loyalty programme and same-day delivery services.

The graph below shows Takealot’s GMV, which has been relatively flat for the past four years.

Regulatory crackdown

In 2023, South Africa’s Competition Commission cracked the whip on local eCommerce players in its Online Intermediation Platforms Market Inquiry Report.

This report found that Takealot is the dominant eCommerce market leader in South Africa, with a strong position in providing online marketplace services to sellers. 

It found that Takelaot’s market dominance and business practices are anti-competitive, and some of the company’s practices harm smaller businesses and consumers by limiting choice and innovation in the South African eCommerce market.

In response to these findings, the Competition Commission imposed numerous strict conditions on the eCommerce giant.

The Competition Commission found that Takealot’s narrow price parity clause distorts South Africa’s eCommerce market competition.

While Takealot opens its online marketplace to third-party sellers, it trades extensively through the Takealot Retail division.

This creates a conflict of interest as it sets the rules for the marketplace and, at the same time, competes with the marketplace sellers.

Therefore, the Competition Commission instructed Takealot to segregate its retail division from its marketplace operations.

Takealot must also extend its employee code of conduct and create an independent complaints channel to include contraventions based on unfairly harming marketplace sellers.

In addition, Takealot must introduce a 60-day dispute resolution process for marketplace sellers’ returns and stock loss complaints.

The commission said Takealot’s Buy Box should also be re-engineered to reflect the cheapest and fastest options for the consumer.

At the time, Naspers’s then-CEO Bob van Dijk said the Competition Commission’s demands would constrain businesses like Takealot, which have grown locally and positively impacted the local economy. 

He told BusinessDay that while Naspers has been engaging with the commission for the last two years, “we do not necessarily agree with the findings of the report”.

“In particular, there are some market definitions in there that economists would roll their eyes at if they had a close look.”

“What bothers me most is that Takealot is built by South Africans, run by South Africans. There is a lot of employment, and the regulation hits a business like Takealot while Amazon gets an advantage.”

The retailer has since been quiet on the impact of the commission’s conditions on its business.

However, News24 recently reported that Competition Commissioner Doris Tshepe called for multiple government policy interventions to be considered in dealing with international eCommerce giants like Amazon.

“One of our eCommerce platforms in South Africa has had some concerns about entry from other bigger platforms in the country given how we sought to regulate some remedies in the country on entry on conflicts of interest and even on structure within those platforms,” she said.

“What happened in the country with the introduction of Temu and Shein, the point I was raising, is that it’s not just competition law that kicks in. Other policies of government have to deal with that.”

SARS also recently cracked the whip on international eCommerce players by introducing VAT on the import of parcels valued at less than R500.

This was done to close a loophole Shein and Temu have previously been accused of exploiting.