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Shopping splurge?

While consumers are increasingly moving their shopping online, delivery still has to be in the physical realm and this presents some problems.

BY  Nicola Mawson , 2 December 20090 comments

Arthur Goldstuck says online is doing better than bricks-and-mortar stores as more people gain access to the internet.Arthur Goldstuck says online is doing better than bricks-and-mortar stores as more people gain access to the internet.

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Online retailers are doing far better than their traditional counterparts, which have been hard hit by the recession, and are not expecting a great Christmas this year. But, because it takes so long to deliver goods that have been bought online, etailers have a shorter period in which to profit.

For traditional retailers, things are not looking good. According to the latest figures from Statistics SA, retail sales were down seven percent in August versus a year ago.

“Online has held up much, much better than traditional retail,” says Arthur Goldstuck, MD of World Wide Worx. This, however, does not mean that etailing has somehow bucked the sales slowdown, but is rather because more people are becoming comfortable with shopping online.

Christmas grinch

Despite etailing’s stronger position, though, the virtual tills are not expected to ring loudly this year. This is more an issue of logistics than a lack of year-end bonuses, Goldstuck says, however.

Because of the logistical difficulties faced by online retailers, they have a slightly shorter year than physical stores. Goldstuck says while “people trust online stores, they don’t trust online delivery”. As a result, while the malls will be flooded up until 24 December, online sales will mostly stop around the middle of the month, he notes.

Craig Ludwig, divisional director for general merchandise at Woolworths, says the retailer’s answer to this issue was to contract Niche Logistics through the company’s enterprise development programme. The black-empowered company manages the retailer’s online deliveries to customers.

Justin Drennan, one of WantItAll’s three founders, agrees that logistics is a challenge. “I have to get something all the way from the US to your door within a week and a bit,” he says, adding that local delivery charges are quite costly.

Drennan says the company’s delivery times mean that it doesn’t usually see a “mad rush over Christmas, but that’s most probably due to our delivery times being seven to 15 working days, and people are normally in a rush”.

Ebucks expects to buck the Christmas slowdown. Adrienne Bewsher, head of operations, says the site saw record spending in the last festive season, with over R70 million in sales.

“eBucks anticipates another strong festive season in 2009 as members turn to the rewards currency to help them make ends meet in the current economic climate,” she says. Last year, the company said it saw a last-minute rush with a ten percent year-on-year increase in the number of unique shoppers in December. Makro gift vouchers were the most popular choice. Makro does not have an online shopping portal, although people can check prices and stock online.

Moving online

Last year, sales grew about 30 percent to R1.2 billion, a figure that strips out travel and vehicle purchases and is directly comparable with the basket of goods that Statistics SA measures. And, while there are only a few shopping weeks left this year, Goldstuck expects growth of between 20 to 25 percent, taking total online sales to around R1.5 billion.

Goldstuck says consumers are becoming more internet savvy, and are moving their shopping behaviour from physical outlets to online stores. “It’s a response to the experience curve,” he states.

However, companies such as Pick n Pay have not seen any cannibalisation as a result of sales through physical outlets moving online.

Spokesman Tamra Veley says: “Home-shopping remains a value-add service – there is no evidence of cannibalisation.”

Goldstuck says the shift towards online shopping will continue as more people access the internet.

Adds Ludwig: “As more people are connected to the internet, via traditional PCs and other mobile devices, so the use of the internet by our customers grows.”

The retailer’s site, which relaunched in August, gives shoppers access to food, homeware, digital and beauty products, and a limited range of clothing items, which can be delivered to most of the major metropolitan areas of South Africa.

Woolworths was one of the first retail chains to offer online shopping services, in the late 1990s, through a site called Inthebag.co.za. The company couldn’t make the model work though, and it eventually faded away.

“The online channel continues to grow, and we have seen the comparable sales for this channel exceed those in stores. The number of visitors to the site has increased and so has the amount of time spent by visitors on the website,” says Ludwig.

In addition, by 2013, mobile wallets will be mature and stable, which will allow lower-earning consumers to transact online, as these shoppers do not usually have access to debt facilities such as credit cards, adds Goldstuck. Until then, online shopping will continue to grow at a steady pace, he comments.

Sign of the times

Goldstuck says sales in luxury items online are suffering. He says people who may have bought a luxury item online no longer have as much disposable income, and are now more likely to go bargain hunting in traditional shops.

Wealthier consumers seem to prefer shopping at stores where they can get personal service. “The wealthy will continue buying, but they will continue buying through the same avenues as before,” he comments.

The eBucks rewards site has noticed a shift in the way people are spending their money online.

Says Bewsher: “Many members have changed their purchasing behaviour and are using their eBucks to purchase everyday essentials rather than the luxuries they would previously have bought.”

Goldstuck anticipates that electronic goods will drive sales. He says these goods have been a big growth driver over the last two years, and are expected to continue to sell. Books will also continue to sell online, despite the introduction of electronic book readers such as Kindle, he states.

However, traditional music retailers are missing the digital download boat, Goldstuck says. “Digital downloads are the growth market of the future.”

He argues that the CD as a storage form for music is dead. “Today’s youth will be baffled by the idea that the music industry expects them to buy these once-off objects, and then find a device to use them on.”

Ralph Lorenz, MD of Musica, says the company closed its online shop at the end of the last financial year as sales volumes were not sufficient. He says the company would look at relaunching a transaction site if there was enough demand.

Pick n Pay’s Veley says another driver is that families are finding themselves reliant on dual incomes. “We have seen a significant amount of registrations – in some months this could be as high as 2 000. We believe this to be as a result of both partners working in many instances, where previously only one may have.”

She says shoppers are hugely time-strapped, with home shopping providing the ideal solution. “We generally find that food is the biggest seller. This is not generally where shoppers would buy bigger ticket items or indulge in impulse buys.”

Woolworths concurs. Ludwig says most of the online turnover is directed towards food, with the balance being homeware and gifting.

As online use grows, so does the potential to persuade customers to move out of malls and into portals. But etailers need to find a solution to the logistics lag if they want to see the full benefit of trading online.



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