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Online retail booms in flat economy

While retail sales in South Africa stagnate and even decline, online shopping has proved to be the light at the end of the tunnel for the sector.

According to Stats SA, total retail for 2023 reached R1,153-trillion, down 1% from R1,164-trillion in 2022. This marked only the second time this century that total retail had declined.

Online retail, in dramatic contrast, maintained a relentless growth rate, jumping by 29% last year to R71-billion. This was the key finding of the “Online Retail in South Africa 2024” report, released recently by World Wide Worx, in partnership with Mastercard, Peach Payments and Ask Afrika. See here.

The study found that the share of total retail made up by the online sector had jumped from 2.8% in 2020 to 6.15% in 2023. At even a substantially lower growth rate for the next two years, it is likely to pass the 10% mark by 2026.

In mature online markets like the United States and the United Kingdom, breaching 10% of total retail sales was seen as a major landmark, ushering in an era of mass adoption of online purchasing.

Gabriel Swanepoel, Mastercard country manager for Southern Africa, told Business Times that the company had also seen this dramatic growth in credit card e-commerce transactions, which include online retail and the likes of travel, accommodation and airtime.

“We’ve seen significant growth over the last two to three years. The industry has gone from around $2-billion six years ago to just over $5-billion last year. A large chunk of that growth is down to consumer choice becoming more prevalent in the broader South African context. The other pertinent thing to call out is that consumer behaviour changed significantly throughout Covid. A lot of those habits didn’t evaporate and we’ve seen sustained growth within that environment.”

The study found that, once again, Shoprite Checkers was the star of the online retail stage. While its overall sales grew by 13.9% in the second half of 2023 to R121.1-billion, the Sixty60 app-based service had surged by 63.1% in the same period, off the back of 4.5-million downloads.

A key to the rapid growth of online shopping has been the maturing of the logistics sector, including the ability of retailers to deliver from local stores to local customers via extensive motorcycle delivery networks. Sixty60 fulfilled orders from 505 stores, with Pick n Pay almost matching it at 500 delivery outlets.

Significantly, Sixty60 created 9,903 new jobs from 2020 to the end of 2023, Pick n Pay provides a case study of how online sales can make up for lacklustre physical store performance: in the half-year to 27 August 2023, online sales leaped by 76.3% year on year, while total sales grew by only 5.4% in the same period.

Even Woolworths reported stellar online sales growth. For the full year, Woolworths reported total food sales of R22.9-billion, up 8.4% over the previous year. Online food sales, however, increased by 47% last year, driven primarily by the on-demand Woolies Dash offering. Online sales made up 5.1% of SA sales, underlining the potential impact on traditional retailers’ bottom lines.

Swanepoel said the South African payments industry was seeing significant growth in digitalisation.

“South Africa traditionally has hovered around the 90% split between cash and digital payments. We think that as technology converges and we’ve got ubiquitous use of mobile smartphones in the market, new participants across different sectors – including retail, healthcare, government, finance, the broader fintech community, telcos – are all going to make a difference in establishing a payment infrastructure. Society is changing, so I think that’s one big indicator.

“The second big indicator is the rise of Generation Z (born between 1996 and 2000), as they’re coming into the system as digitally natives, comfortable with operating remotely, comfortable with operating in omnichannel types of environments. And so the ascension of digital payments is going to be incumbent upon how well as an industry we digitalise and we meet consumer expectations, both from a user experience and customer experience point of view.”

The “Online Retail in SA 2024” study confirmed that those defined as Generation Z, aged from 25 to 34, showed the deepest penetration of online shopping of all age groups: 46%, compared to 36.6% for all adults living in cities and towns in South Africa.

The study’s demographic research, based on the TGI Survey conducted by Ask Afrika among 16,000 South Africans, showed two significant shifts within age groups. In the youngest band, those aged 15-24, penetration fell significantly, from 43.7% to 37.7%. The shift potentially indicates the impact of youth unemployment on the growth of online retail in younger age groups.

This is, to some extent, balanced by an even more significant shift in the oldest age group, namely those aged 65 and above. From a low 16.4% in 2022, penetration in the “retirement” segment grew to 24.9% last year.

Increased penetration in demographic segments that were previously seen as outside the online retail target market represents one of the key growth areas in the future.

Rahul Jain, CEO of Peach Payments, says this growth is premised on aligning with consumer needs.

“We are in an era where consumers expect seamless integration between digital and physical retail spaces,” he said. “In response, retailers are rolling out innovations such as 60-minute deliveries available to everyone, including low-income communities, and are improving infrastructure with physical collection and next-day pickup points.

“To further align with consumer needs, the payment process is evolving to incorporate a variety of alternative payment methods that prioritise convenience and accessibility.”

A version of this article first appeared in Business Times in The Sunday Times. Arthur Goldstuck was lead analyst on the “Online Retail in South Africa 2024” study.

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