A quick look at the pros and cons of entering the online retail market

Online shopping in South Africa has continued to hit record highs, especially during last year’s holiday season when online spending increased between 30-40% compared to previous years. The country’s internet economy has been projected to double to R103bn by 2016 from the R51billion recorded in 2011.

Recent studies reveal that the internet economy contributes 2% to South Africa’s GDP and this contribution is rising by about 0.1% every year, resulting in 2.5% increases by 2016.

What does this mean for South African’s retailers?

An increase in online shopping is driving structural changes in the retail sector, according to a recent report issued by PwC.

Online users in South Africa tend to fall within the medium to high-income sector of the population. “This group appears to have a strong pent-up demand for online services,” says John Wilkinson, PwC Retail and Consumer Leader in South Africa.

However, Wilkinson says that South Africa’s online retail market is still relatively small and niche with a strong focus on consumer products such as books, music and DVDs. “This is unlike many of the developed markets, such as Asia and Australia, where there has been an explosive growth of online retailers. Suffice to say there is huge online potential that has yet to be discovered and tapped in South Africa.”

Having already set up an important channel for their long-term future are Edcon’s CNA division, Walton’s with their e-store and Mr Price which are all already operating in the online retail market.

So how easy is it to tap into this market? Let’s consider the pro’s and con’s:

The Pro’s:
There’s no loss to theft
You have access to 24 hour sales
You have national and international reach
Less employees are required
You can collect more data and get better visibility of your customers buying behaviour online, from age and location demographics, initial search terms, related items they are interested in and much more, easily collected via a simple analytics program.
You look bigger than you actually are
You van stock more items. A retail storefront will perform better for a business that sells a select amount of products, while an online store may work better for a business that carries an extensive selection.
Environmental factors such as position, weather, traffic, parking or increased petrol prices don’t affect you.
No bottlenecks or customer queues
Your customers can easily promote your products via sharing on social platforms such as Twitter, Facebook and Pinterest at the click of a button. (Word of mouth marketing is very powerful and it is much easier for you to encourage this via an online store.)

The Cons:|
There is more competition online –  the web is where people go to get bargains and consequently competition is fierce. Margins in online retail tend of be lower than on the high street and so retailers need to compensate by selling more.
There is more admin required
There is less customer contact
There is no touch or feel of quality for customers and returns are time-consuming
There are lower margins. It has been found that consumers pay significantly more for products they can view in person and for the ‘experience’ within a retail store.
Postage and shipping costs can be expensive
There is no passing foot traffic
There is less impulse buying
There is a dependency on hardware
There is less trust of the brand or product.

The solution? To have both of course.

 What you will need:

An  online payment system such as Paypal for example.
You will need to pay for web hosting and technical support
You will pay for shipping and accepting online payments.
You will pay for your desired domain name and for someone to develop your website and e-commerce platform.
You will need to handle fulfillment and shipping
You will need to maintain it.

Building a customer base is one of the most-essential components of starting a successful retail business, online or offline. With a retail store, the potential customer base is limited to the surrounding area. Online, the customer base is limitless.

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