The Competition Commission has imposed numerous strict conditions on Takealot, hampering its ability to compete against international players like Shein and Amazon.
The Competition Commission’s Online Intermediation Platforms Market Inquiry Report found that Takealot is the eCommerce market leader with a dominant share of overall online sales.
Takealot has an even stronger position in providing online marketplace services to sellers. This is where businesses can trade within the Takealot platform.
The Competition Commission has imposed numerous conditions on Takealot, including that it must segregate its retail division from its marketplace operations.
It must also remove its ‘narrow price parity’ policy on its marketplace sellers, preventing them from pricing lower on their own websites.
There are numerous other requirements, including:
- It must extend its employee code of conduct and create an independent complaints channel to include contraventions based on unfairly harming marketplace sellers.
- It must introduce a 60-day dispute resolution process for marketplace sellers’ complaints on returns and stock loss.
- Its Buy Box must be re-engineered to reflect the cheapest and fastest options for the consumer.
The Competition Commission further found that the eCommerce business model restricts historically disadvantaged businesses from effectively competing in the market.
To address this distortion, Takealot is to implement an HDP Programme that provides:
- Personalised onboarding, the waiver of subscription fees for the first three months and at least R2,000 advertising credit for use in the first three months,
- Offering promotional rebates and the inclusion of HDPs in HDP-specific campaigns on the platform, and
- A programme to specifically support targeted groups within HDPs such as female, youth and rural enterprises with business mentoring and funding support.
Many of these interventions may be seen as justified when viewed in isolation, but several factors are ignored in the Competition Commission report.
The glaring omission is that Takealot is not making large profits, as is the case with most dominant players and monopolies.
Takealot has invested billions to provide world-class eCommerce services to South Africans and has not yet turned a profit.
It does not enjoy a natural or legally protected monopoly. People only prefer Takealot over its competitors because of its excellent service levels.
It faces stiff competition from many South African online commerce players, including Massmart (Makro, Game, and Builders), TFG (Bash), JD Group (Everyshop), and many others.
However, its biggest competitors are international companies like Amazon and Shein. They ship directly to South Africans and bypass many local requirements and taxes.
Former Naspers CEO Bob van Dijk said the Competition Commission demands would constrain businesses like Takealot, which have grown locally and positively impacted the local economy.
He is concerned that authorities are targeting local businesses but not international companies like Amazon and Shein.
“What bothers me most is that Takealot is built by South Africans, run by South Africans,” Van Dijk said.
“There is a lot of employment, and the regulation hits a business like Takealot while Amazon gets an advantage.”
He added that Amazon has a thousand times more financial muscle than Takealot, which gives it a considerable advantage.
“If Amazon makes a profit, I can assure you, you will see very little of it in South Africa,” Van Dijk highlighted.
So, while the Competition Commission is hampering Takealot’s operations, Amazon and Shein are essentially getting a free ride.
The effect can be significant. Superbalist, which Takealot owns, is under increasing pressure from Shein and was forced to retrench staff.
Shein, in comparison, is growing rapidly and is investing millions to increase its logistics capacity in South Africa to cope with demand.
Free Market Foundation researcher Zakhele Mthembu described the Competition Commission’s latest action as “destructive interference”.
He said successful eCommerce companies are essentially punished for being successful and for growing and diversifying.
“The Competition Commission has a skewed analysis of what constitutes a market. The theoretical fallacy of perfect competition undergirds its theory,” he said.
“Instead of looking at obvious barriers such as regulations and legislation that make doing business so burdensome, it obsesses over business advantages that firms acquire voluntarily.”
He said the Commission now seeks to punish businesses like Takealot for having legitimate market advantages.
“The Commission is killing South Africa’s golden goose by proposing to bar those with property from investing or expanding their businesses through self-preferencing,” Mthembu said.
“It must listen to the Reserve Bank’s call for the state and its institutions to avoid regulated prices and overly regulated markets.”
Mthembu said the South African economy urgently needs markets free from interference and legislative barriers.
This article was first published by Daily Investor and is republished with permission.