Takealot.com is profitable for the first time ever

Takealot Group CEO Frederik Zietsman revealed that Takealot.com is profitable as of the 2024 financial year.

Zietsman revealed this at a media roundtable event at the Takealot Group offices in Cape Town.

He stated that while the Takealot Group – comprising Takealot.com, Mr D, and Superbalist – incurred a trading loss, both the Takealot.com and Mr D businesses are now making trading profits individually.

He explained that this is the nature of the J-curve in e-commerce.

The principle behind the J-curve is that as a company recovers from its fixed-cost expenditures, it can start to grow rapidly. According to Zietsman, this is the phase that Takealot is currently in.

“You need to incur fixed costs ahead of your revenue curve if you are in e-commerce. You expand your fixed cost base for the next 12–18 months, and then you grow into that base,” said Zietsman.

“If you look at Takealot.com, we expanded our fixed cost base post-Covid, then we grew into that base last year, and we made a profit,” said Zietsman.

He also said that according to data reported by Stats SA, Takealot is increasing its market share in most, if not all, of its key categories.

Naspers also reported 13% gross merchandise value (GMV) growth for Takealot.com, which Zietsman said was “a very strong performance” given the tough financial environment in South Africa over the past year.

The challenging environment affected consumer habits in the form of a decline in average order value (AOV), meaning South Africans are “shopping down” by adding fewer items to their baskets and not buying premium brands.

Naspers also reported 16% GMV growth for Mr D, despite South Africans buying fewer takeaways in a more challenging financial climate.

Mr D’s increase was instead thanks to the company’s venture into the grocery business in partnership with Pick n Pay, which Zietsman said was growing very well.

Temu and Shein app icons on an iPhone screen. By: Koshiro K / Shutterstock.com

Despite the success of these two companies, Takealot Group’s financial results for the year ended 31 March 2024 included a $14 million (R252 million) trading loss.

Zietsman attributed this Group loss to the Takealot Group’s ball and chain and the final piece of the puzzle — Superbalist.

The only one of the three businesses in the group that is not making a profit, Superbalist faced additional challenges with Shein’s entry into the market — but still experienced 7% GMV growth.

Zietsman explained that the Takealot Group is considering repositioning the offering, which will directly impact how long it takes for the Takealot Group to become profitable.

He said that the Takealot Group is looking at the detractors from profitability, such as Superbalist, to determine how they can optimise and fix them.

Naspers also warned in its financial results that if government doesn’t step in to close the tax loophole companies like Temu and Shein were exploiting, the consequences for South Africa would be dire.

“The rise of e-commerce platforms such as Shein and Temu in South Africa underscores a growing concern that threatens the nation’s reindustrialisation and localisation efforts,” Naspers stated.

It argued that business models that flood the market with inexpensive products create an imbalance that hinders the sustainability and development of local industries.

“These e-commerce platforms exploit outdated regulations and loopholes by using shipping methods that allow them to offer products at exceptionally low prices while avoiding duties, taxes and other government fees imposed on conventional retailers.”

The loophole in question is the so-called de minimis rule that allows all packages under R500 to be imported with a 20% duty and no VAT.

The South African Revenue Service (SARS) has said such small parcels would be taxed at the appropriate rate from 1 July. For clothing, this means a 45% duty and 15% VAT.

Naspers said regulatory gaps in the e-commerce sector made the market unconducive to fair competition, which “leaves domestic retailers, both online and offline, at a disadvantage.”

“It is imperative that policymakers craft regulations to level the playing field, ensuring all participants adhere to the same standards and practices and contributes fairly to the national economy,” it continued.

“If unaddressed, the disparities will continue to widen, placing local businesses at a further disadvantage.”