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Johannesburg - Killing off the Kalahari brand signals that South Africa's e-commerce market may not have grown fast enough, analysts said on Monday.
The Competition Commission (CompCom) in January approved a merger between local e-commerce brands Kalahari and takealot.
And this week, both e-commerce brands have announced that the Kalahari website will be closed within a month. Fin24 understands that several Kalahari staff have been absorbed into takealot while others have found new jobs elsewhere.
US investment firm Tiger Global Management and media company Naspers [JSE:NPN] will each have an approximate 41% stake in the merged e-commerce business. Management and shareholders will own the remaining stake of the merged unit.
The folding of Kalahari into takealot is intended to boost the merged unit’s scale and supply in South Africa.
Data from measuring company Effective Measure has indicated that kalahari.com was South Africa’s biggest e-commerce website in December 2014 with 2 277 636 visitors to the site, while takealot.com had 1 737 672 visitors.
"I think they both realised one major thing: The biggest defining factor in online retail is scale,” Steven Ambrose, chief executive officer of technology research firm Strategy Worx, told Fin24.
“And neither of them independently had the scale to really perform at the sort of level that people assume the internet is capable of,” said Ambrose.
Research has indicated that the adoption level of e-commerce in South Africa is small compared to global markets.
PricewaterhouseCoopers (PwC) survey results released earlier this year said that the value of online retail sales in South Africa is R5.3bn, which is not even 1% of total retail sales in the country. In the UK, internet sales accounted for 10.5% of department store sales, according to Statista.com.
"So, the whole promise of the growth of online retail in South Africa has been a bit of a damp squib,” Ambrose told Fin24.
"It's not happened in the way that people anticipated or predicted it would," he said.
In an interview with Fin24 earlier this year, takealot co-CEO Kim Reid was more upbeat about South Africa’s e-commerce market.
"The fantastic part about it is there's an R800bn consumer retail market in South Africa today and that's what we're growing into. So, we're not creating a new market; we're basically feeding off that existing retail market,” he said.
Tapping an existing retail market, though, could be a challenge for South African e-commerce businesses that need large internet audiences.
South Africa’s number of internet users is expected to hit a “conservative estimate” of 18.5 million during 2015, according to research released by World Wide Worx Managing Director Arthur Goldstuck earlier this year. South Africa has a total population of just over 50 million.
Goldstuck in his research also noted that less than a million people are buying virtual products in South Africa - a sign pointing to low e-commerce participation levels in the country.
"In South Africa, how many people have access to online communications? How many people are enabled from a technology perspective to actually use e-commerce?” Mark Walker, the regional director for Sub-Saharan Africa at the International Data Corporation (IDC), told Fin24.
"There's an access inhibitor," Walker said.
"Also, it's not only physical access or access via devices. It's also the ability to spend online,” added Walker.
For instance, Walker said access to credit cards is a key requirement for numerous online shopping portals.
Yet statistics released by Kalahari in 2011 indicated that South Africa at that stage only had a 16.7% credit card penetration rate.
Walker further told Fin24 that the Kalahari-takealot merger poses questions about consolidation in the e-commerce space.
He said the trend globally is for smaller e-commerce firms to start operations and then possibly get merged or acquired into other businesses.
"It's a scramble in the beginning. The most successful guys win out for that region or country. And then they will consolidate upward...to various holdings and mergers and acquisitions and so on," Walker told Fin24.
"It can lead to all kinds of preferential agreements, arrangements.
"It cuts a lot of those smaller players out of the market,” Walker said.
Other analysts, though, have pointed out the potential positive benefits that a Kalahari-takealot merger can have for consumers.
“The merger is a positive development, as it takes an up-and-coming, creative and dynamic brand in takealot, and gives it the depth of customer base and history of an older brand that has appeared unable to innovate or shake off the drag of its legacy systems,” Goldstuck told Fin24 on Monday.
“The customers of both services win. It is also good for the industry, as it presents an opportunity for a truly stand-out retail e-commerce business in an environment where previously only larger airlines like kulula.com and smaller niche players like YuppieChef, Netflorist and Cape Union Mart seemed to have got it right,” said Goldstuck.
In the meantime, preparations are under way to close the Kalahari website and brand as takealot has launched a section on its site explaining how customers will be affected by the change.
It is unclear when exactly kalahari.com will close, but this is said to happen within the next month, marking the end an era for a brand that started in 1998 selling books, music and VHS titles.
