Publications
Partners
For fast-growing online businesses operating in a fiercely competitive world, staying ahead of the game is a cash-burning exercise.
Last month’s R960m investment by Naspers* in takealot, which owns online retailers takealot and Superbalist as well as Mr D Food and Mr D Courier, gives takealot the cash it needs to scale up.
“Our models are well-established, but these businesses need cash to scale,” says founder and CEO Kim Reid.
“We are not trying to build a small retailer,” he says. “We are investing in our platform and in attracting new users.”
For companies like takealot, attracting more users and making more sales increasingly offsets high fixed overheads, and profitability increases. In this type of business, scale is everything.
“We have wanted to raise cash to be sustainable and to cement our future, and this investment is exactly what we need to ensure our sustainability,” Reid says.
While fast-growing online companies may not be short of investor interest, Reid says it takes time and effort to raise cash and it can take one’s eye off the ball and be disruptive to business.
takealot.com was launched in June 2011 following the October 2010 acquisition of e-commerce business Take2 by Reid and US-based investment firm Tiger Global Management.
takealot now claims to be the leading e-commerce retailer in South Africa and “one of the largest, most innovative e-commerce retailers on the African continent”.
This is Naspers’s second investment in takealot, the first taking place alongside takealot’s merger with kalahari in 2015. Last month’s investment, which sees Naspers become its majority owner, still needs approval from competition authorities.
The investment allows Reid and his team to focus on the businesses and on growth, which has been strong. Growth has been a compound 90% a year in terms of number of transactions and over 100% in terms of gross merchandise revenue.
Its businesses are at different stages of development. takealot is the most mature, and so growing at a slower rate than Superbalist, which grew “at triple-digit rates” over the last few years. Mr D (formerly Mr Delivery) has transitioned into a purely digital business and is phasing out its call centre over time.
These businesses operate in a cut-throat world, and their competitors are not just online. “When we do pricing analysis in Superbalist, for example, we are fighting for the same consumer as online platforms and everyone from H&M to Cotton On.”
Asked if these competitors include global online retailers, Reid says “yes and no”. There are challenges with ordering globally. Many people order on global sites and do not receive their goods, or they do not have the option to return items.
Goods from global retailers can take a long time to arrive and customers may incur unexpected charges.
“We believe you need to be in the country – in control of delivery and of customer satisfaction,” Reid says.
Not only is takealot on the ground in SA, but there is also huge potential for growth here, where online retail accounts for less than 2% of the non-grocery retail market and less than 1% of the total retail market.
This compares with online retail penetration “in the teens in the US and UK retail markets, and at 17% in China”, says Reid, quoting Euromonitor figures.
There are also differences between online retail in different regions. “Our traffic is predominantly mobile traffic and conversion is very different, so how you develop the product itself is important.” This gives takealot some local advantage but SA remains slightly behind the curve when it comes to e-commerce. This enables it to learn from the experience of global companies like Amazon.
It can also learn from Naspers, which is heavily invested in various e-commerce initiatives.
Reid, an accountant by training, was with Naspers for 10 years before he left “to do [his] own thing”. At the outset, he formulated a set of values which continues to form the basis of takealot’s culture.
Among these are “being faster in getting things done” with dedicated team players on board. “The people with the best people will win – they need to be smart, hungry and must have integrity, and they need to be builders who want to achieve something and want to get something out of their job.”
His ideal employees are “people with low ego and high energy”, he says.
Rapid growth comes with challenges, and the takealot staff count has increased from 25 to 1200 in less than six years.
But Reid says the company continues to be managed through a flat structure, and no one has offices.
His laid-back image hides his one big frustration, which is pace. “Pace is always too slow, and I am always looking forward. We are in a business that has so much opportunity,” he says. The critical thing, with so much opportunity and choice, is to be selective about what you chase. “That is our management responsibility. It is also costly to chase the wrong things. It is good to make mistakes but you must shut down quickly if you fail.”
*finweek is a publication of Media24, a subsidiary of Naspers.
This article originally appeared in the 25 May edition of finweek. Buy and download the magazine here.
