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SA online retail topped $3.8B in 2023, growing 29%

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Online retail sales in South Africa reached R71 billion (US$3.8 billion) in 2023, making up more than 6% of total retail, according to new research findings released today.

The "Online Retail in South Africa 2024" study by World Wide Worx – in partnership with Mastercard, Peach Payments and Ask Afrika – reveals significant growth in SA's e-commerce market with online retail growing 29% during the year, positioning the sector to break the R100 billion ($5.4 billion) mark by 2026.

This comes after 35% growth the previous year took the total to R55 billion ($3 billion) in 2022.

"The strategic shift towards competitive e-commerce offerings and enhanced customer engagement, including sophisticated AI-driven tools, has fundamentally transformed the retail landscape in South Africa," said Arthur Goldstuck, CEO of World Wide Worx.

(Source: World Wide Worx' Online Retail in South Africa 2024 study)
(Source: World Wide Worx' Online Retail in South Africa 2024 study)

Goldstuck said the overall findings provided a powerful indication of continued future growth with online sales forecast to hit 10% of total retail by the end of 2025.

"This is a truly significant number. Because we saw that when that [10%] level was reached in more mature markets like the United Kingdom and the United States it caused tremendous excitement around online retail. At that level, all companies realized that online retail was now so critical to their strategies that it required even greater investment in some cases than traditional retail," he told journalists during a press briefing about the study's results.

"It resulted in a massive boost for the overall online retail landscape, because of the investment that went into it, which then fed further growth in the years that followed," he added.

Goldstuck said the boom in online sales two years ago could be attributable to what was termed the "pandemic dividend," brought about by a massive demand for home deliveries beginning in 2020.

The ongoing rise was driven by competitive e-commerce strategies from most major physical retailers, existing e-shoppers moving more of their traditional shopping to the online space, and credit card payment processing becoming more streamlined.

The relentless rise of e-commerce is occurring at the same time as total retail continues to stagnate, with SA's overall retail sales dropping 1% in 2023. Goldstuck said this is only the second time this century that total retail had declined.

The study also pointed out the success of traditional retailers like grocery store chains offering app-based delivery services. The most successful of these is Checkers' Sixty60 service, which saw a 63.1% increase in sales in the latter half of 2023, while Pick n Pay grew online sales by 76% and Woolworths reported a 47% increase in online sales. By contrast, the country's largest online retailer, Takealot, grew sales by only 6%.

An industry survey World Wide Worx conducted among South African retailers as part of the study showed that customer service was paramount to online retail success, with 73.9% of respondents emphasizing its importance.

Stock availability and a wide range of quality products were also crucial, while competitive pricing and personalization of offers were less critical. The researchers, however, expected that to change with the advent of artificial intelligence in personalizing offers.

The most significant operational challenges for the industry were payment failures (18.2%) and managing customer queries and complaints (16.8%).

Shifting demographics

The Online Retail in South Africa project has for many years partnered with market research organization Ask Afrika in the analysis of online shopping data from its Target Group Index (TGI) survey.

TGI comprises two six-monthly waves of surveys among 16,000 consumers, representing adult South Africans, aged 15 and above, living in cities and towns in South Africa, giving comprehensive analysis of online shopping trends and demographic breakdowns in South Africa.

Some of the interesting demographic trends include:

Gender: A slight decline in male online shoppers from 41% in 2022 to 37.4% in 2023, whereas female shoppers showed a marginal increase from 35.4% to 35.8%. However, male shoppers still enjoy higher proportional access to online retail.

(Source: World Wide Worx' Online Retail in South Africa 2024 study)
(Source: World Wide Worx' Online Retail in South Africa 2024 study)

Age: The 25-34 age group consistently led in online shopping activity (46.3%), with notable growth among those aged 65+ from 16.4% in 2022 to 24.9% in 2023.

(Source: World Wide Worx' Online Retail in South Africa 2024 study)
(Source: World Wide Worx' Online Retail in South Africa 2024 study)

Socio-Economic and Living Standards: Higher socio-economic levels and living standards correlate strongly with higher online shopping activity. In 2023, individuals from the highest socio-economic level (SEL 1) showed the greatest propensity to shop online at 63.4%, while the percentages decreased across lower socio-economic levels.

(Source: World Wide Worx' Online Retail in South Africa 2024 study)
(Source: World Wide Worx' Online Retail in South Africa 2024 study)

Income and Education: Higher income and education levels correspond with increased online shopping, underscoring the digital divide.

(Source: World Wide Worx' Online Retail in South Africa 2024 study)
(Source: World Wide Worx' Online Retail in South Africa 2024 study)

Devices: In 2023, mobile phone usage for online shopping passed the halfway mark (50.4%), indicating a growing preference over desktops and laptops.

(Source: World Wide Worx' Online Retail in South Africa 2024 study)
(Source: World Wide Worx' Online Retail in South Africa 2024 study)

Product Categories: Clothing and groceries are the most purchased items online, with increased diversity in shopping choices reflecting growing consumer trust in online platforms.

(Source: World Wide Worx' Online Retail in South Africa 2024 study)
(Source: World Wide Worx' Online Retail in South Africa 2024 study)

Andrea Rademeyer, the founder and executive chair of Ask Afrika, said that the demographic data supplied by the company's TGI survey underscored a significant shift in consumer behavior.

"As South Africans move more of their spending online, they also become more confidents in the medium, and increase their individual levels of spending. Most significantly, they are becoming more aware of the increased convenience and choice available online," Rademeyer said.

Despite growing online engagement, a significant proportion of consumers expressed a preference for in-store shopping experiences (28.5%), underscoring ongoing challenges for e-commerce in terms of consumer trust and the perceived risks of online transactions.

The TGI Survey found that 20% of consumers said the online medium gave them more choice and variety. However, only 18.6% regarded it as safe and secure to shop online.

The researchers believe the growth and transformation in South Africa's online shopping landscape has been driven by technological adoption and changing consumer behaviors. However, challenges remain, particularly in bridging the digital divide and addressing consumer concerns about online security and trust.

Amazon enters the chat

There was much fanfare this week as US-based e-commerce giant Amazon officially launched its online marketplace in South Africa, which is expected to shake up the local online retail sector and challenge dominant players like Naspers-owned Takealot.

"The arrival of Amazon.co.za in South Africa on May 7, 2024, was probably the most momentous event in the local e-commerce industry since the launch of Checkers' Sixty60 in 2020," Goldstuck said.

Connecting Africa asked the executives involved in the study about the impact that Amazon's entry into South Africa will have on the local market and whether it will grow the online retail pie or just split shoppers who are already spending online with retailers like Takealot.

"From my perspective, given that we know that it's about trust and security, and Amazon has an incredible brand around specifically that, I think it will open the market to more traditional or conservative online shoppers, so actually I think it will grow the market," Rademeyer told Connecting Africa.

"I think if you look at the growth in the numbers expected, we're going to go from 6% to over 10% of online retail. So, it's not a zero-sum game. Both Amazon and Takealot are competing in an expanding market. So, I think, to that point, first-time shoppers, if you increase that, then overall, it will grow," added Rahul Jain, CEO of Peach Payments.

Shabir Ahmed, Mastercard's VP of customer solutions for Southern Africa, agreed, adding that Amazon's entry provides local sellers and smaller businesses with an opportunity to grow their potential and their revenues by utilizing the Amazon platform.

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*Top image source: freepik.

— Paula Gilbert, Editor, Connecting Africa

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