I have had 2 articles on my mind that has lead to a few thoughts on the state of South African ecommerce. Paul Galatis wrote a very interesting analysis on why ecommerce in our country is lagging and then Andrew Lynch asked out loud what is wrong with ecommerce in South Africa? Paul and Andrew are both entrepreneurs in the ecommerce space in South Africa thus the articles hit home for me and it lead to this post.

Paul mentions that the reason why we are behind is not due to the normal factors mentioned in conversations over coffee etc. Instead, it is due to retailers not paying enough to ecommerce and thus not executing it to the masses.

We’ve all heard the arguments and many of us have used them repeatedly: South Africans are nervous to use their credit cards online; internet speeds are slow; the postal service is unreliable; we don’t trust that our orders will actually arrive; we still want to touch and feel products before we buy them; and that South Africans shop differently to people in the rest of the world. I used to tell that story but now I have a different idea.

I have been in the ecommerce space for close to 5 years and can unequivocally state that the industry has moved forward. There are many more ecommerce businesses in the country now that what was the norm back in the early 2000’s. The growth is seen in the fact that almost every retail category (home goods, electronics, pharmacy, clothing, wine etc) are now represented by an online business that competes with the physical retailer we all are accustomed to visit. Payment gateways have doubled in providing prospective entrepreneurs with options to process credit cards. So, what is the matter and why are we always asking about the state of the ecommerce industry?

Andrew mentions on HumanIPO that he hears about the growth of ecommerce but still has to see it (the paraphrasing is mine) and I can say after returning from my 3 week holiday in the US, I asked the exact same question. It feels like the pied piper makes an appearance every year about in October about the growth of the industry fueled by a well known credit card survey. Trust me, that is what happens every year but if one looks closely the industry is growing. We need to be honest, the critical mass has not been reached.

Rocket Internet’s entry through Zando has changed the clothing vertical. I notice a lot more entrepreneurs in the clothing space doing everything from full price e-retail to flash sales. Zando has done a lot of marketing and ensured that they are at the top of the minds of their customers but their competitors like Style36, Takealot etc are also aggressively marketing themselves to their customers. The mere fact that international venture capital is being spent on a South African ecommerce business is for me a sign that the industry is still wide open in certain niches.

Add Groupon’s effect on the e-commerce industry, they led to more people becoming willing to spend online due to economics of the deals they share daily via email. It may not seem big but it lead to a lot of new users buying online.

The pain points at the moment

There are a few things that are holding back the growth of ecommerce in South Africa in my mind. Last mile shipping, the amount of internet users we have in the country and the minor amount of retailers that are in the ecommerce space.

When I was in the US, I purchased something and had it shipped to the hotel I was staying at. The process is very simple and one that I wish I could bottle and bring to South Africa. Logistics is at the moment in my opinion a barrier to entry. I recently made a purchase from an online retailer and got an sms from the logistics company that they are standing in front of my residence and not a single email or sms from the online shop to indicate that my item is on the way.

The last mile of ecommerce is one of the most important factors that are being overlooked by almost the entire industry.  If I compare my local experience to that I encountered in the US then this pain point needs to be addressed. Takealot’s partial acquisition of Mr Delivery is a sign that some of the ecommerce businesses are beginning to realise that logistics needs to be part of the ecommerce value chain.  Aramex has acquired Berco in 2011 so I suspect that will potentially aid the ecommerce industry. The fact that Fedex is about to conclude buying Supaswift and change them into Fedex Express leads to a greater footprint for ecommerce businesses to use.

Secondly, the amount of Internet users we have in South Africa. I am not even going to mention that we are behind others in Africa regarding the Internet in terms of infrastructure and adoption. I spoke to an ecommerce entrepreneur recently and he mentioned that one of his biggest expenses is user acquisition costs. Why? Ultimately all of the ecommerce industry is competing for the same user base and attention. Our user base is not as big as that of the UK, US so it boils down to Adwords, facebook advertising etc to gain new users, which is a very expensive exercise. This specific symptom is the biggest barrier to industry growth in my mind. How do we all solve this? One answer – mobile.

Thirdly, name me all of the retailers in South Africa that we have in shopping malls that are online enabled? Woolworths, Pick and Pay (you need a lot of patience), House and HomeDionWired, Mr Price and more recently Dischem. The list is by means not comprehensive but I believe, as the amount of retailers increase that has a functional ecommerce channel grows, the user base will also grow.

These 3 factors together will determine who succeeds and who become also-rans. At the moment the ecommerce vertical is being used by early adopters, those who have the economic means to spend due to large salaries. However, I believe that at the moment, the shift away from this group to a new middle class group due to the economic conditions being faced in our country in underway.

E-commerce in South Africa is in a very exciting period of time with a lot of great things on the horizon.