Despite being at a nascent stage, Amazon’s imminent arrival in the local ecommerce space will “definitely” foster competition in SA’s burgeoning online retail market.
Additionally, the South African ecommerce market is likely to see significant investment and growth over the next five years, with potential for market consolidation afterwards.
This is the word from analysts, commenting on the confirmation of the years-long rumour that US-based online retail giant Amazon will establish a South African presence. The company said Amazon.co.za will go live in the country in 2024.
Peter Takaendesa, head of equities at Mergence Investment Managers, points out that Amazon usually takes a long-term investment approach and introduces “best-in-class” bundled services.
This is likely to see competition increase, particularly in the key consumer retail segments Amazon plays in, he states. “It is unlikely the incumbents will stop investing in their own ecommerce platforms until it becomes clear Amazon is winning.”
Independent analyst Nozi Dikgale comments: “One of Amazon’s USPs [unique selling propositions] is that it offers two selling plans on its platform: individual and professional. This is unique and will offer value to sellers. Sellers will leverage Amazon’s technology: using AI capabilities to write product descriptions on the platform.”
Ofentse Dazela, director of pricing research at Africa Analysis, believes Amazon’s local entry will have a minimal impact, at this stage.
This, according to Dazela, is mainly because ecommerce services are still in a relatively nascent stage in the country, although sales are promising and on the upward trajectory in urban and peri-urban areas.
“However, in the long-term, one expects Amazon to take the lead in further evolving in the local market, borrowing from its extensive experience and robust financial resources that will be required to build its presence and brand.”
What it means for Takealot
Amazon’s local arrival comes as online retail passed the R50 billion milestone in 2022, accounting for around 4.7% of the total retail market, according to the Online Retail in South Africa 2022 study conducted by World Wide Worx with Mastercard.
In South Africa, US-based online retail giant Amazon will take on Takealot, which comprises Takealot.com, Mr D Food and Superbalist, and is SA’s biggest online retailer.
Takealot, the Naspers-owned ecommerce platform, has struggled to make a profit, despite being in the online retail business for more than a decade.
Amazon’s arrival will be added pressure on local players. “One of Amazon’s USPs is [that] in the US they offer customers same day or next day deliveries. Should that be made available in SA, it will exert even more pressure on local players to up their game,” comments Dazela.
“Takealot is already facing growing competition from many local businesses, including telecommunication companies that have long identified the need to open additional income streams in the ecommerce space.
“I imagine Takealot would not be too preoccupied by Amazon entering the market, as it will probably continue to grow its client base in the residential market (end-users), while Amazon’s strategy in the short-term is focusing on local sellers, brand owners and entrepreneurs.”
Takaendesa points out it’s difficult to predict, with high conviction, where all this heightened activity will leave Takealot, given Amazon’s proven strength in this business model.
Nevertheless, Takealot has so far had a solid first-mover advantage in SA and has strong backing from parent company Naspers, he highlights.
“If the playing field is levelled to the extent that all local and foreign-owned players are subject to the same constraints and opportunities, I think Takealot will prove to be a tough competitor for Amazon to beat.
“Most CEOs will tell you competition is good when a new player enters the market, but they forget to tell you it may be somewhat true in an early-stage market, where there is still room to grow customer education about a new product or service.
“The ecommerce market is still in its infancy in South Africa, so there is still room for growth and more than one player.
“However, over the long-term, I think e-tail is likely to be a winner-takes-most, if not all. Naspers exited most of its Middle East and African e-tail business years ago, and only kept Takealot, which I believe speaks to Takealot’s strong position in the market and its mid-long-term prospects.”
Announcing its planned arrival in the local market, Amazon invited South African independent sellers to register on its platform, saying this will provide “an opportunity to rapidly launch, grow and scale their businesses”.
Dikgale says Amazon establishing a local presence will benefit both individual and professional sellers.
“Sellers will leverage Amazon’s capability and its brand reputation as a global ecommerce market leader. Additionally, this will offer sellers more reach once it takes off the ground.”
Takaendesa states: “We are quite likely to see large and small businesses leveraging Amazon’s ecommerce platform as a way to grow their market presence, but also to reduce occupancy costs and ecommerce platform investment risk.
“We have seen Pick n Pay recently partnering with Mr D for grocery delivery and we have also seen this platform or infrastructure sharing in the telecoms space, where tower sharing facilitated by independent speciality tower operators is now a key theme.”
Dazela says the benefits for small businesses will come down to the overall value SMEs will likely derive from their relationship with Amazon.
“If there are tangible incentives for them to partner with Amazon, then we will probably see a good number of them partnering with Amazon to maximise returns in their respective businesses.” Republished with permission from ITWeb Limited