Founder: Turnaround Talk
With the announcement that Amazon will launch in South Africa in 2024, the local online retail space looks primed for a significant battle over consumerism in Africa’s most diversified economy.
Since the Covid-19 Pandemic, South Africans have been flocking to online shopping as an increasingly enticing retail method as restrictions prevented consumers from visiting shopping malls. This stayed strong following the lifting of these restrictions as retailers doubled their investments in online shopping platforms.
A few enticing subplots need to be discussed following Amazon’s announcement, specifically when it comes to the threat to Takealot and the latter’s opportunities in a world of increased competition.
Increased competition
We know very little about Amazon’s expansion into South Africa other than it is planned for 2024 and that it will provide a platform for independent sellers in South Africa to sell their products.
Amazon’s expansion will bring in a new level of competition to a market dominated by Takealot and (to a lesser extent) BidorBuy, which both focus on providing small and medium-sized retailers with similar opportunities.
This increased competition is a potential watchpoint for Takealot regarding Porter’s Five Forces.
The only element of Porter’s Five Forces that could significantly impact Takealot is the Threat of Substitution. This refers to the likelihood of your customers finding a different way of doing what you do. It could be cheaper, or better, or both. The threat of substitution rises when customers find it easy to switch to another product or when a new and desirable product enters the market unexpectedly.
But will consumers move away from Takealot? South Africans are notorious when it comes to brand loyalty. However, this mainly pertains to older consumers. Younger consumers, Gen Z and Gen Alpha are obsessed with the gratification they receive from a retailer and how retailers personalise the customer journey. If they find that a company is falling short on this, they will switch allegiances.
With the threat of a new entrant, Takealot can ill afford to rest on its laurels of being a dominant force in the South African digital shopping space. It will have learned a significant lesson from Multichoice, which ignored this disruption model completely and subsequently lost considerable relevance.
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Bigger powerplay
Amazon’s expansion into South Africa may form part of a bigger picture. While the company wants to tap into the South African retail market, South Africa may prove to be a platform for the US tech giant’s expansion into other African markets.
This can work in Takealot’s favour as narrowing your focus means that all your resources will be dedicated to perfecting one platform instead of many.
Does the economics of this move make sense?
There is also another challenge that Amazon needs to address. Expansion into South Africa will not come with immediate success. In addition to the brand loyalty that South Africans have towards Takealot, South African consumers are also facing significant economic headwinds, which are pressurising disposable incomes. According to a BusinessTech article (published at the end of September), statistics from the South African Reserve Bank pointed out that real personal disposable income (PDI) declined by 0.1% QoQ in Q2, following a 0.3% decline in Q1. Additionally, bonuses and higher wage settlements slightly boosted household incomes. However, overall weakness was caused by slow employment growth in Q2, with 150 000 jobs created in the quarter, and elevated inflation during the period as CPI averaged 6.2% in Q2.
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The article adds that seasonally adjusted nominal household debt also grew faster than disposable income, pushing the debt-to-income ratio from 62.3% to 62.5%.
Higher debt accumulation and higher interest rates also drove up debt servicing costs, with the ratio of household service cost to disposable income jumping to 8.8% – the highest level since 8.4% in Q1 2017.
Takealot knows this pressure and has adjusted for it in its business forecasting and strategic planning. Has Amazon done the same?
The biggest challenge will be the economy
While there is the potential for a clash of the tech titans that will rival the Rumble in the Jungle, I feel that the biggest challenge facing Takealot and Amazon is the economy as opposed to each other.
Amazon is looking to replicate its global business model in South Africa, and this business model is no different than Takealot’s. While this business model largely depends on the relationships that one can build with its independent retailers, this is what Amazon is good at. Therefore, unless Amazon has a drastically different service offering, it is a case of a rose by any other name remaining a rose.
So, where to next? What will be the value differentiator? If consumers are under pressure and disposable income is shrinking, value will be determined by which company can take Big Data, refine it, and act upon it by providing independent sellers with access to highly consumable products with the most airtime. This is where experience in a market will benefit a company. And this is where Takealot will have a leg up against its opponent. However, Amazon is a global retail giant and has probably faced similar challenges. It will not drag its feet regarding market analysis and will invest in its access to these data sets. From there, it is about which company can turn this data into actionable insights.
