Takealot’s big challenge

Naspers recently announced it had invested R716 million into Takealot during August 2015 as part of a funding round at the online shop.

Naspers further reported that its shareholding in Takealot is now 42.2% – down from 46.5% in February 2015.

This suggests that other parties also put in funding, which substantiates industry speculation that Takealot recently raised well over $100 million (R1.45 billion).

This funding round follows a $100 million injection from its major shareholder Tiger Global Management in May 2014, and a few smaller funding rounds before that.

Takealot remains mum on the latest funding round, and would not discuss what it is planning to do with the money.

Many South African ecommerce players questioned whether Takealot will be able to show a return for its shareholders, especially in the short-to-medium term.

Two industry experts shared their views on Takealot’s possible future, and it points to many challenges for the company.

Takealot spending lots of money to gain customers

One industry expert said Takealot’s merger with Kalahari did not double its customer base, because there was a lot of duplication between the two sites.

To bolster their customer numbers, he said, Takealot is now using specials and vouchers as bait. This, however, does not guarantee loyalty.

Many online shoppers will move to another ecommerce outlet if Takealot raises its prices, or drops the ball on customer service.

He said that Takelot is currently burning through millions of rand per month to support its high operating costs, large staff complement, and aggressive marketing and customer acquisition initiatives.

Big risk of wasting money

One of the biggest challenges Takealot faces is staying lean and effective. Another industry expert said promising start-ups are often hamstrung by corporate governance, red tape, and politics – a big risk for Takealot as it is part of the Naspers stable.

Having access to large amounts of money through funding rounds can often see a quality company employ too many people, over engineer, and ultimately under-perform.

When the shareholders get tired of this under-performance and no profits, the money dries up. The company then goes into survival mode, which often means staff cuts and a bailout with conditions.

Increased competition coming

While Takealot is currently the undisputed champion in the South African online shopping market, increased competition is likely in the future.

Massmart – which includes Makro, Game, Builder’s Warehouse, and Dion Wired – already has a fair ecommerce presence, which is likely to grow.

The same goes for the JD Group (Incredible Connection and HiFi Corp), and other prominent brick-and-mortar outlets.

Other large international ecommerce players, like Mara Sokoni, are also entering the African market – with a strong focus on South Africa.

Takealot will also have to contend with smaller players like Raru, Gumtree, and Bidorbuy, who are building strong brands in the local market.

Takealot a “long play” for investors

An industry expert with knowledge of the South African online shopping market told MyBroadband that Takealot is a “long play” for investors.

He said investors should not expect to see any returns in the medium term, but that a dominant position in the South African market can pay off in the long term.

He said Takealot will have to evolve to compete effectively in the South African market. This includes building an inclusive marketplace, and following the lead of companies like Amazon and eBay.

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Takealot’s big challenge