Good news for people shopping online in South Africa

The entry of global giants Shein, Temu, and Amazon has intensified e-commerce competition in South Africa, raising consumer expectations for lower pricing, convenience, and product variety.

This is according to a recent Boston Consulting Group (BCG) survey on South Africa’s e-commerce landscape.

The report found that South Africa’s retail sector has been grappling with weak economic conditions, characterised by stagnant inflation-adjusted GDP over the past five years, persistently high unemployment, and elevated inflation. 

While consumer spending on essentials like groceries has seen a minor uptick in recent years, discretionary spending on items such as apparel, home goods, and electronics has decreased significantly.

Over the next five years, South African consumers’ resilience will continue to be tested, with economists predicting a modest 2% annual real GDP growth. 

The survey found that around 20% of consumers are less optimistic than two years ago, 80% reported stagnant or declining household incomes, and nearly 20% plan to increase their loans. 

“Although the post-election period has brought a slight boost in optimism, the survey highlights a more burdened consumer with an increased reliance on credit,” said Project Lead in BCG’s Consumer Practice Vishakha Chopra.

However, amid this challenging retail landscape, e-commerce presents a silver lining. 

“Even against the backdrop of a weakened retail sector, eCommerce has grown by over 30% annually since 2019,” Chopra said. 

This growth was driven by factors such as the Covid-19 pandemic, favourable regulations like stricter data privacy laws, and service improvements like Takealot’s same-day delivery and Checkers Sixty60’s 1-hour delivery service. 

BCG’s research further showed that one in three South Africans with internet access has shopped online in the past 12 months — a trend that is on the rise.

South Africa has a relatively small e-commerce industry, accounting for approximately 5% to 7% of the retail market.

However, the industry is expected to boom with an annual growth rate exceeding 20% over the next five years. 

“Although some larger South African firms like Takealot and Checkers have a head-start, the market has yet to coalesce around dominant digital frontrunners,” said Thomas Kingombe Kock, Managing Director and Partner at BCG.

Shein, Temu, and Amazon in South Africa

He added that the entry of foreign marketplaces – like Shein, Temu, and Amazon – marks a new phase of local digital competition. 

“These foreign giants have indicated their plans to use South Africa as an entry point for their regional expansion into sub-Saharan Africa,” he said.

“Shein and Temu bring expansive variety but face challenges of slower international deliveries and complex customs processes.” 

“Amazon, however, is building local inventories to enable faster delivery in major metros, setting itself apart operationally from its Chinese counterparts.”

Amazon ‘soft launched’ in South Africa on 7 May this year, using its time-tested launch playbook. However, Kock said the launch appears rushed and under-prepared, with several out-of-stock products. 

Amazon introduced 15 categories and 0.15 million products, a stark contrast to its launch in Australia, where it offered 100 million SKUs in the first year. 

“It appears they have taken a gradual approach aiming to enhance the shopping experience and add new sellers over time,” he said.

However, he said one area where Amazon could disrupt the market is by leveraging its sophisticated pricing analytics, enabling it to change prices every 90 seconds to match competitors on key products. 

“This dynamic pricing approach is particularly relevant in South Africa, a highly price-sensitive market where 27% of respondents surveyed confirmed they compare prices across sites and are willing to wait longer for lower prices, as seen with Shein and Temu,” he said.

“While economic headwinds persist and consumer spending remains constrained, we see the entry of global e-commerce giants into the South African market as both a challenge and an opportunity for local retailers.”

Chinese eCommerce giants Shein and Temu have taken South Africa by storm through their low prices and affordable local deliveries.

From a challenge perspective, these international players bring with them sophisticated pricing strategies, vast product selections, and a willingness to invest heavily to gain market share.

Kock said their arrival also raises the bar for customer expectations in terms of price, convenience, and choice, pushing local players to adapt quickly to compete effectively and retain their customer base.

“This leads to the opportunity, a requirement of investment in key eCommerce enablers, including dynamic pricing strategies to match the aggressive pricing tactics of global players,” he said. 

“Those who can successfully adapt and innovate will be well-positioned to thrive in this evolving market.” 

Tax problems

Since these international players started gaining traction in South Africa, local retailers and the textile industry have complained that Shein and Temu were exploiting certain tax loopholes.

They claimed this enabled them to significantly undercut South African retailers on pricing, creating an uneven playing field.

The “loophole” is a South African Revenue Service (SARS) concession for low-value imports below R500, introduced in 2007 to simplify package clearance.

Using this concession, Shein and Temu could charge their customers a flat duty of about 20% of their order’s value, including clothing items normally taxed at 45% plus 15% VAT.

Following complaints from local manufacturers about the seemingly unfair advantage, the taxman stepped in and announced certain changes to its import tax rules in August 2024.

The first was an interim adjustment to levy 15% VAT on all imports with a value under R500 on 1 September 2024. 

This was in addition to the flat duty of 20% that had previously been the only tax applied to these parcels.

SARS also said it planned to apply new import taxes according to guidelines set by the World Customs Organisation (WCO) from 1 November 2024.

However, the revenue service has yet to publicly release its de minimis and full declaration threshold values, which are required to apply the WCO guidelines.

This article was first published by Daily Investor and is reproduced with permission