Despite the slow-down in growth of online retail in South Africa, the number of retail websites has exploded: from 215 at the end of 2001 to more than 700 at the end of 2003.
However, the market is dominated by the top eight online retailers, who between them account for about 80% of all online retail sales in South Africa, according to 'The Goldstuck Report: Online retail in South Africa 2004.
The survey by World Wide Worx found that online sales by retailers - which exclude property, cars and travel - increased by 35% in 2003, but are expected to grow by only 25% in 2004. A total of R341-million in online retail sales was achieved in 2003 - a mere 0,14% of the overall retail market in South Africa.
Of this, around R66-million in sales, or 20% of online retail, was recorded over the November-December holiday shopping season.
This suggests that the holiday season is still important for online retailers, but far less so than for traditional retail.
"If online retailers have a bad year, they cannot rely on December to save them," says Arthur Goldstuck, MD of World Wide Worx, who led the research. With costs of online retail high and margins tight, they have to be on their toes around the clock as well as around the year."
The dominant online retailers are Pick 'n' Pay Home Shopping, Kalahari.net, Woolworths Inthebag, Netflorist, Cybercellar and Streetcar.com, with the MWEB ShopZone dominating the market in online shopping malls, followed by Digital Mall.
Growth for these players is steady, but not as strong as in past years, when an annual doubling of turnover could be expected. However, most of them are healthier than at any time in the past, and most are generally profitable on an operational level.
The report includes in depth interviews with nine key executives in the e-commerce arena, and reveals the strategies behind the success stories in South African online retail.
Other key findings of the research included:
* The most commonly purchased items are groceries, apparel and books.
* The single fastest growing retail category by number of sites is flowers and gifts, followed by apparel and then food, beverages and groceries.
* Sites that are associated with physical retailers tend to be the most profitable, but there is little clear distinction between online-only businesses and combined physical and online operations when it comes to operational profit.
* Most online retail sites are an extension of an existing physical retail operation, although several of the largest are online-only.
* 2003 saw the first slowdown in rand growth of online retail sales, with the total growing by R89-million, after R90-million growth in 2002. The rand growth figure is expected to decline even further in 2004 and 2005.
"The single biggest obstacle to growth identified by all the executives we interviewed was access to higher and cheaper bandwidth," says Goldstuck. "Unless the telecommunications authorities deregulate the market more effectively, online retail in South Africa will stagnate."