Competition Commission investigating Bob Shop

The Competition Commission has launched an investigation into Bob Shop over its new standard shipping system, MyBroadband has learned.

Bob Shop first launched its R30 standard shipping as an option earlier this year.

This offered buyers and sellers flat-rated delivery options through a selection of couriers that had been integrated into the system.

At launch, Bob Shop’s standard delivery supported The Courier Guy, Internet Express, SkyNet, RAM, and DPD Laser.

At the start of June, the standard delivery service became compulsory for all sellers on Bob Shop.

The complainant, who elected to remain anonymous, said this removed consumer choice.

Reading between the lines of their complaint, the real issue was that Bob Shop charged both buyers and sellers R30 for shipping.

MyBroadband contacted Bob Shop for comment about the complaint, and Bob Group managing director Andy Higgins (pictured) responded to our questions.

In its response to the Competition Commission, Bob Group explained that it made the standard shipping option compulsory because some sellers exploited Bob Shop’s former ability to set their own shipping prices.

These sellers would list items at cost price, or even below cost, and then profit from high rates for shipping.

“With high or unreasonable rates set, offers were sometimes perceived as misleading for buyers on the platform,” Bob Group stated.

“When bidding on an item, or initiating a purchase, buyers did not always fully understand the implications of the shipping cost. This often resulted in unconsummated orders on the platform.”

Without a standardised shipping system, buyers were also not receiving consistent communication about their purchases. Often they would receive no details while waiting for a delivery.

“From a security and safety standpoint, Bob Shop did not have parcel tracking status visibility on the majority of orders on the platform,” the e-commerce challenger stated.

“When customers contacted our customer service team, it resulted in us not being able to assist buyers with queries. Bob Shop would have little to no visibility as to whether the parcel was delayed, lost, had been delivered or even shipped in the first place.”

Bob Group told the Competition Commission that it is looking into integrating other shipping providers. It has already had to remove DPD Laser due to capacity limitations.

“It is not reasonable or technically possible to expect us to integrate with every single shipping provider in the country,” the company said.

It also added that other prominent marketplaces in the South African landscape only offer structured shipping solutions.

“For example, sellers on Takealot.com are expected to ship products to a warehouse, where the product is repackaged and reshipped to the end customer,” Bob Group explained.

“The seller is essentially charged twice for any shipment on the platform. Makro.co.za also has a structured offering, along with other marketplaces in the country.”

MyBroadband asked Higgins who they believe lodged the complaint.

“Some of our disgruntled sellers told us they were going to report us to the Competition Commission, so we suspect it is them,” he told MyBroadband.

“While the changes to how the shipping worked was disruptive to some sellers, we think those that were the most vocal about it were those previously profiting from charging excessive shipping rates to their buyers on Bob Shop.”

Higgins said they still believe their platform is much more open than other online marketplaces such as Takealot, Amazon, and Makro.

“We were surprised by the Commission even taking their complaints further,” he said.

What about cheap items?

Asked if Bob Shop has a way for sellers to handle low-value items, Higgins said they do.

“For orders under R100, Bob Shop charges the buyer an additional R30 ‘small order fee’, which gets [paid] over to the seller,” he explained.

“For shipments that are under 10kgs, which is most small orders, shipping does not cost the seller anything.”

Asked if the standard shipping option wouldn’t result in sellers hiking prices on individual items to cover delivery costs, like what has happened on food delivery apps like Mr D and Uber Eats, Higgins provided an example.

“If you take an extreme example where the seller sells R1 items, they would have to increase the selling price of that item by R0.30, i.e. from R1.00 to R1.30, in order to ensure they always cover the seller’s shipping fee,” he said.

“This would mean if a buyer purchased 100 items x R1.30, the seller would receive R130, R30 of which would go towards covering their shipping fee.”

What if couriers charge more than R60 for a delivery?

If a courier charges more than R60 to deliver an item, Bob Shop eats the loss.

We asked Higgins if they break even on delivery surcharges and if they have a model that helps them average out losses on some orders with surpluses on others.

“It is a game of swings and roundabouts,” he said.

“We have tried to structure it such that we break even on our baseline cost to couriers versus what we recover from buyers and sellers,” said Higgins.

“But it is difficult to measure this exactly, especially with some of the unknown surcharges that get imposed on us after the fact from couriers.”

Higgins said he would argue that the courier industry is still an imperfect market.

He provided a recent example where a courier charged them R415 for a 2kg delivery, resulting in Bob Shop having to cover the difference.

“We have had to build a new team to manage and follow up on these shipments, which is not included in the baseline courier costs but comes at an additional expense to us,” Higgins said.

“We hired a specialist from the courier industry, dedicated existing staff to this team, and are currently in the process of hiring five additional support staff predominantly to focus on shipping support.”

Courier depot

Buyers, not sellers, pay for shipping

Higgins said that regardless of how you slice it, the buyer always pays for shipping.

“Whether it is directly or indirectly, the cost has to get passed on to the buyer, so in my opinion, it is somewhat moot as to who pays for shipping,” he said.

He explained that one of the major differences between the Takealot and Bob Shop models is that, for the most part, Takealot has a centralised logistics model requiring sellers to send their products to a distribution centre.

Sellers can choose whether to do this up-front in bulk or on lead-time, but ultimately all goods sold on Takealot’s platform must go through one of its warehouses.

“Takealot then consolidates and ships those orders to the buyer, pretty much using only their own logistics infrastructure,” Higgins said.

“This results in each item having to get shipped twice: once to the Takealot DC, and then again to the buyer.”

Bob Shop’s approach, on the other hand, allows items to be shipped directly from the seller to the buyer, ultimately saving the buyer on an additional leg of shipping costs.

Competing with Takealot

Higgins said that part of their motivation for introducing standard shipping was to better position Bob Shop to compete with the likes of Takealot and Amazon.

“It is interesting to me that the Competition Commission does not really seem to take profitability into account,” he said.

“I am pretty sure none of the marketplaces — including ours if we were to separate it out on its own — are profitable yet.”

“It is a notoriously difficult model to get right and requires significant investment and scale to make it work, which makes it even more frustrating when you have the [regulator] breathing down your neck.”

On the topic of the Competition Commission’s Online Intermediation Platforms Market Inquiry, Higgins said he would support the position Takealot has taken in public.

“The regulators should step aside and let the private sector get on with growing the sector, especially considering how far behind South Africa is in e-commerce compared to our peers,” he said.

“However, I do feel the Competition Commission may have a point with regards to one aspect, and that is with Takealot doing first-party and third-party sales.”

Higgins said he agrees with the Competition Commission that Takealot is in a position to abuse their dominance and disadvantage the very third-party sellers they claim to be empowering.

“Being the lessor and lessee of their platform if you like,” he said.

The Competition Commission released its Online Intermediation Platforms Market Inquiry report on Monday, imposing several restrictions on Takealot.

These included ordering Takealot to immediately end its price parity contract clauses that prevented sellers from offering items for cheaper on rival platforms, including their own websites.

It also ordered Takealot to segregate its retail division from its marketplace operations and said it must prevent its retail division from accessing seller data.


Now read: Big changes coming for Takealot — and a warning for Amazon

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Competition Commission investigating Bob Shop