#Africa There’s sense behind Naspers bailing out of SA e-commerce


It started at the beginning of 2014, and has gathered pace this year. South African media giant Naspers is giving up on e-commerce ventures in the place it calls home.

In February of last year, Naspers caused waves when its internet arm in Africa MIHIA closed a number of what it called “small businesses which are no longer core”, namely online fashion store Style36, furniture e-commerce platform 5Rooms, online baby clothing retailer Kinderelo, camera store SA Camera and wine, beer and food e-commerce site 5Ounces.

Naspers has further detached itself from South African e-commerce as this year has progressed, even getting out of startups it only got into relatively recently. In March online beauty subscription service Rubybox was the subject of a management buyout two years after receiving investment from Media24.

The company merged Kalahari with rival Takealot earlier this year, thus diminishing its stake in the new joint venture, while last month the move away from South African e-commerce escalated further as Naspers sold price comparison service PriceCheck back to founder Kevin Tucker, with the help of Silvertree Internet Holdings.

Quite an exodus. Yet Naspers continues to invest extensively elsewhere, even in e-commerce. So why is it leaving the sector behind in South Africa?

The attractions

Like many, Naspers was attracted by the huge opportunities many other investors have seen in African e-commerce. Frost & Sullivan estimates the market across the continent will be worth US$50 billion by 2018, compared to just US$8 billion two years ago. In South Africa, PwC predicts the value of online retail sales will rise to ZAR9.5 billion (US$770 million) by 2018.

The potential opportunity is indeed huge, and that has not gone unnoticed by both investors and entrepreneurs. New e-commerce platforms spring up across the continent each week. The sector has been the subject of huge investment – notably for Takealot, Jumia and Konga, but a host of other smaller startups as well – and it shows no signs of dwindling. The aforementioned Silvertree is a big fan in South Africa, while the likes of Africa Internet Group (AIG) are pumping in cash elsewhere.

This opportunity is deemed to be so significant as Africa, and South Africa particularly, is expected to follow the same path as the United States (US) and Europe, which have seen huge booms in e-commerce. This will only be assisted by greater mobile and internet penetration on the continent, a young demographic, and increased spending power as a result of economic growth.

The limitations

The opportunity may well be huge, but returns are a long way off. Jumia and Takealot are often spoken about, but even these companies remain unprofitable, the latter to the extent that it was forced to merge with its major competitor. This is because the market is simply too small.

Only 26.5 per cent of Africans are connected to the internet, while the United Nations says eight of the 10 countries with the lowest levels of internet availability in the world are in Sub-Saharan Africa. And even those that are online are still by no means converts to online shopping.

In South Africa, e-commerce accounts for only 1.3 per cent of the total consumer goods market, while PwC reports South Africans still prefer to use physical shops as opposed to buying goods online. Even in places such as the US and the United Kingdom (UK), online retail accounts for only around 15 per cent of purchases. The long road to scalability is clear, and Naspers may simply have not been prepared to wait.

Aside from market size, there are other challenges to e-commerce’s success in Africa. There is a lack of logistics infrastructure, with the likes of Konga.com having to develop their own fleet services – at considerable cost – in order to overcome logistical challenges. E-commerce businesses also need to overcome skepticism when it comes to buying online, particularly when it comes to payments security. All of which makes it an expensive investment for a company like Naspers, especially when returns are some way off.

The future

There are signs the sector is losing its lustre among investors, with fintech and e-health now more often spoken of as attractive investment destinations than e-commerce. Yet there is still sizeable interest, even if no longer from Naspers.

One company that remains keen is Silvertree, though partner Paul Cook says the company has found that focusing on niche e-commerce, rather than general, sell-everything sites is key, and allows for quicker returns. These are startups focusing on narrower sectors that in return require less investment and allow the company to focus more specifically on core strengths.

Though the customer base in general e-commerce is substantially larger, so is what is required to go into the site and market it. Startups are also able to focus on a specific product or service, meaning it is far easier and quicker to streamline and optimise offerings. Relationships with sellers and customers can be more personal.

For Naspers, for now, this is all moot. The company is moving away from South African e-commerce and unlikely to come back to it anytime soon. It is up to other companies operating in the space, both general and niche, to prove they were wrong and that those touted returns are not as far away as they think.

The post There’s sense behind Naspers bailing out of SA e-commerce appeared first on Disrupt Africa.

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