Reports have recently surfaced that global e-commerce retailer Amazon are set to enter the African market as an online retailer from early next year. South Africa has been targeted amongst 5 countries including Nigeria, Belgium, Chile and Colombia. The international giant already has a presence here in South Africa in Cape Town with Amazon Web Services (AWS). The project for entry into the online retail market in SA and Nigeria is reportedly known as ‘Project Fela’.
Why Only Now?
The question has been raised by many as to why Amazon haven’t already made an entry into our market. The exact reason is not open knowledge but maybe let’s look at the value of the global e-commerce market, as well our market compared to other stronger markets. Global e-commerce revenue is expected to reach nearly $9tn dollars by the end of the year, the biggest share of this market by far is China with $1.4tn, the USA at $900bn, and Japan at $215bn. The South African market is expected to reach $8.7bn this year and reach $14bn by 2025. We are number 41 in terms of market value and we fall in between Iraq and the Philippines. Global growth saw a 29% increase in 2021 and South Africa contributed to this with 19% growth. However we also need to consider the potential of the South African market considering that currently only about 6% of our purchases are made online.
Current Opposition/Market Leaders
South Africa’s leading e-commerce retailer is currently Takealot, who experienced significant growth over the last few years since the Covid pandemic which forced then otherwise dubious consumers to explore the avenue of online shopping. To give you an idea, Takealot’s growth between 2019 and 2020 grew from $318m to $392m, but their growth from 2020 to 2021 grew from $392m to $606m. Latest results indicate that they are almost at break even after previously running at a loss. Holding a distant second position is Superbalist (who actually also form part of the Takealot Group backed by Naspers) with sales at $153m, followed by Woolworths at $115m, Mr Price at $33m, and Homechoice at $31m. The fastest growing online store was Decathlon with sales of just over $5m, a 266% increase from the previous year. These are the players who stand to lose the most with the entrance of Amazon. Whether Amazon will opt to buy put an existing player or enter directly, still remains to be seen.
How does our product market compare with Amazon’s market?
In South Africa electronics generate the most revenue online with nearly 25% of the market followed by furniture, then fashion, and then food. Almost 44% of Amazon’s global sales are electronics, followed second by clothing, shoes and jewellery, and third by home and kitchen. Clearly our product market is aligned with Amazon’s market.
Not to be underestimated
Amazon have managed to singlehandedly change the dynamics of the ecommerce ecosystem and are the industry benchmark. They currently have almost 50% of the US ecommerce retail market and already had 13% of the global ecommerce market in 2020, shipping to over 100 countries. They continue to grow internationally and are undoubtedly a major force to be reckoned with. Not unknown to the South African consumer Amazon already offer an efficient importing system here by estimating taxes and import duties making for a streamlined and quick system.
Where will they set up their distribution centres?
Speculation has it that they are already searching for warehouse space locally, South Africa has no shortage of premium grade warehouse and distribution centres currently on offer. Local industrial developers are focusing seriously on modern state of the art structures featuring impressive eave heights, power floated floors for racking, as well as fire control systems, large yard areas and motorised doors. The R21 corridor in Pomona, where Takealot are currently moving their current Gauteng operation to a larger facility has many options including Eastport Logistics Park, Riverfields, and Plumbago Business Park.
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Courtesy Statista, ecommerceDB, FinancesOnline