Guest Post: What is really wrong with e-commerce in South Africa

Guest Post: What is really wrong with e-commerce in South Africa

Andrew Lynch co-founded CableKiosk.co.za last year, while studying at Rhodes University.

Andrew Lynch is co-founder of Cape Town-based e-commerce site CableKiosk.co.za, which specialises in supplying cables and electronics to the consumer and corporate market.

CableKiosk was founded in his digs room in 2012 at Rhodes University. For HumanIPO, Lynch evaluates the negative side of e-commerce in South Africa:

For years now we have been hearing about how South Africa is on the verge of an e-commerce explosion. The explosion’s main proponent is Arthur Goldstuck. But I have to ask: Where is it?

Takealot’s CEO Kim Reid admitted last month in a Business Week Interview that they only fulfilled 1,200-2,000 orders a day. That is an embarrassingly low number considering the wide array of products they have available and the number of consumers in South Africa.

Paul Galatis recently suggested that the reason South Africans weren’t shopping online was simple: not because there were not the enough people demanding to shop online, but rather because there were not enough retailers running effective e-commerce programmes and supplying products into the ecosystem.

While the arguments on both sides are interesting, one issue that many overlook is the characteristics that define the market. A quick examination of the South African market size clearly illustrates why major brick and mortar retailers are justified in their hesitancy to roll out e-commerce programmes.

South Africa is the largest economy in Africa and has a population slightly over 50 million.

There are 13 million registered taxpayers of which only five million filed tax returns last year. All of a sudden the potential market size is a lot smaller. As one digs further things start to get even more gloomy: The threshold for being a taxpayer in South Africa requires you to earn ZAR63,556 (US$6,352) per annum or ZAR5,297 (US$529) per month.

To get online with a broadband connection will cost you somewhere around ZAR500 (US$50) in Telkom and internet service provider (ISP) fees per month. At this level you’re having to fork out more than 10 per cent of your monthly income before you’ve gone out and bought a computer, paid bank fees to get a credit card or purchased something online.

To put this figure in context, Statistics South Africa Income and Expenditure Report suggests that the average South African spends 12.8 per cent of their income on food and non-alcoholic beverages.

If you are spending 5 per cent of your income on internet access, that requires you to earn ZAR120,000 (US$12,000). If one looks at the distribution of taxpayers in South Africa only 57.5 per cent of taxpayers had assessed incomes of ZAR120,000 in 2012. All of a sudden your addressable market has nearly halved again.

With such a small potential market of internet shoppers the hesitancy and slow uptake of e commerce programmes by large brick and mortar retailers becomes clear.

The barriers to entry for consumers to get online is simply too high. Large retailers are justified in pursuing their current strategies of opening more brick and mortar stores, where all that is required by the consumer is ZAR5 to ZAR10 on a bus or taxi ride in order to arrive at a store.

Posted in: Internet

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