Broadband and experience the keys to online retail

Internet Research

Online retail in South Africa grew by 20% in 2005, down from the 25% growth rate of 2004, as the industry finds itself lagging due to the high cost of broadband Internet access in South Africa.The total spent on online retail goods in South Africa in 2005 was R514-million, up from R428-million in 2004, according to a new report from World Wide Worx, “Online Retail in South Africa 2006”. A further 20% increase is anticipated in 2006.

These figures exclude the sale of air tickets online, which dwarf the numbers for online retail. The four South African airlines selling tickets online, namely,, 1Time and Nationwide between them account for R1.8-billion in e-commerce in 2005, more than doubling the 2004 figure of R850-million, and more than three times the size of conventional online retail.

“ has in fact been the single biggest success story of e-commerce in South Africa, and is the first South African consumer web site to reach R1-billion in online sales in a single year,” says Arthur Goldstuck, MD of World Wide Worx. “It is abundantly clear that online ticketing of air travel will continue to dominate consumer e-commerce in South Africa for at least the next five to ten years, given present growth trends in conventional online retail.”

The total spent online on retail goods during the November-December 2005 holiday season fell to 16% of annual sales from the 20% average across all online retailers that was reported in 2002 and 2003 and the 18% in 2004.

The number of online retail sites has grown substantially, from 719 at the end of 2003 to 826 at the end of 2005. This growth has come despite 210 sites – more than a quarter of those online at the end of 2004 – closing down during 2004 and 2005. No less than 311 new sites came online during this time.

The fastest growing major categories in terms of number of sites were auctions (230% increase in sites), gifts (50%) and apparel (32%). Gifts have been identified as representing significant opportunity, but by the same token has become one of the areas of greatest competition in online retail.

“The market can expect to see fallout in this sector, as well as in auction sites, which seem to have been fired up by the huge success of eBay, without having the market and structural benefits enjoyed by eBay,” says Goldstuck. “However, this sector is also dominated by a few large players, mainly Aucor and Bid-or-Buy, and many of the latecomers will disappear.”

The market is dominated by ten online retail sites, which between them account for most online retail sales in South Africa, according to “Online Retail in South Africa 2006”.

They are the two major malls, M-Web ShopZone and Digital Mall, the two largest online grocers, Pick ‘n’ Pay Home Shopping and Woolworths, the two largest online book retailers, and Exclusive Books, the largest online florist NetFlorist, the largest online wine retailer Cybercellar, the largest online electronics store Digital Planet, and the largest online health and beauty store, Ascot Direct. also dominated several other categories, including Music, where Look ‘n Listen and Musica are expected to offer serious competition, and movies, where it has almost no competition.

“The biggest obstacle to growth identified by all the executives we interviewed continued to be speed of Internet access, and more specifically lack of affordable access to broadband,” says Goldstuck. “But there is a growing realisation that the growing experience levels of users will also make a significant impact. We call it the Experience Curve, and we believe that is the key to online retail in South Africa.”

According to media consultant Stephen Whitford, who conducted executive interviews with leading online retailers for the survey, 2005 can be described as “a year of positioning”.

“For most of the main online retailers interviewed this year, 2005 has been about re-strategising, implementing new systems, improving business processes and expanding product ranges,” Whitford concludes.

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