Retail Growth Can Be Driven By Digital Transformation, Collaboration & Participation
Monday, 09 December 2019
Nerina van Niekerk is 24 and lives in Stellenbosch, some 52 kilometres from Cape Town, capital of one of Africa’s most wired provinces. In the Western Cape, 75% of people who are 16 and upwards have access to the internet. This compared to Gauteng, at 55%.
A beauty blogger, Nerina spends loads of time each day on social media, but she has yet to purchase a product or pay for a service in the digital world. Self-admittedly, an ecommerce ‘virgin’, Nerina only buys things from brick-and-mortar stores in the real world.
Why? Nerina cites a lack of experience. “I am a moderator in chat rooms, but will never buy online. Ever! I don’t. I feel like I am not good with money or technology. If I want a pizza I would prefer to drive and get it. It is the waiting period that kills me - there is this void. I trust real-world experiences more.”
Trust Drives Ecommerce Participation
Welcome to the real world of retail where humans want immediate fulfilment, but where a predominantly young market arrives at ecommerce with considerable psychological complexity. As the world hurtles through one of the most complex political periods in history, ecommerce has crossed borders.
Today, if van Niekerk chooses to, she can go online and shop from Takealot, Amazon, Superbalist, Faithful to Nature, or any of a host of local, Africa-wide or global ecommerce merchants that currently enjoy a growing trade.
Unline brick-and-mortar retail, online shopping is growing at a significant rate. Online retail in South Africa passed the R14-billion mark in 2018 as ecommerce started to go mainstream. This was the key finding of the Online Retail in South Africa 2019 study, co-authored Platinum Seed and Arthur Goldstuck of World Wide Worx with the support of Visa. Endorsed by the Ecommerce Forum of Africa, the 2018 figure represents 25% growth over 2017, which came as a surprise. This, given the predictions that online retail growth would slow down to below 20% by 2018.
2018 Brings Dismal December Retail Sales
In stark contrast, Stats SA reports that the volume of retail trade sales “grew by 2,1% compared with 2017, down from annual growth of 3,1% in 2017 and up from 1,7% in 2016. In 2018 the annual growth rate got off to a good start of 4,7% in the first quarter, but it fell to just 1,8% in the second quarter and 1,5% in the third.”
In the fourth quarter of 2018 — that all-important festive sales period — the annual growth figure for SA’s retail trade sales registered at just 1%. This decline in growth rate for last year is clearly evident in the trend line shown in the graph below.
SOURCE: Dismal December For SA Retail, By Stats SA.
The big question to ask then, is why is retail underperforming? And what effect does ecommerce have on real-world retail? An important factor in retail is the market, and post-Zuma the consumer market has shrunk. South Africa has been in a technical recession since late 2018, with Stats SA reporting diminishing GDP growth. This after two of the world’s biggest international credit rating agencies downgraded SA’s status.
SA’S Contracted Consumer Market
How do consumers react during a contracted market? Back in 2009, following the 2008 subprime mortgage crisis, SA (predictably) experienced a recession, and consumers were tightening their belts.
At the time, the UCT Unilever Institute of Strategic Marketing and Bateleur Khanya Research Solutions (BKRS) undertook to find out how South Africans from all walks of life were responding to the economic downturn. The study found that not all consumers reacted to the recessionary environment in the same way.
In particular, the groups identified by them as ‘The Youth Market’ (18-25 year olds, LSM 8+) and ‘Pre-Families’ (25 to 40, LSM 8+, no children), as well as ‘Young Families’ (LSM 8+, children under 12) were reasonably confident and financially flexible, especially when it came to day-to-day spending. Long-term expenditure, like buying a new car, was likely to be put on hold by some, however; and in the ‘Young Families’ segment, luxuries were foregone in favour of services and products seen as necessities for children. The advice to brands targeting these younger markets was “not to compromise on your brand image, but do what you can to make it more affordable.”
What We Learned In The Last Recession
The study found that those at the bottom end of the spectrum (LSM 5-7) struggled the most in a recession. Older and wealthier segments were more likely to hold onto their capital while concentrating on reducing debt. For these, experience is more important than material items, so brands were advised to focus on customer service — what we now refer to as ‘customer-centricity’, and to bring experiential elements into their marketing, products and services.
What has changed since the 2009 economic downturn? Quite a few things, actually. Social media has grown exponentially, in terms of ad budget and influence. Millennials have come of age and are demanding better, more personalised service. And big data has become useful and important. How can retailers better use data and digital transformation to drive growth? The answer comes from Alibaba’s porous, enabling economic approach.
China is rewriting the playbook on retail e-commerce, thanks to Jack Ma, the founder of Alibaba. At the heart of this revolution is the thinking that humans are the epicentre of retail, and that all that matters is an obsession with customer-centricity that puts these people first. This at the same time as enabling logistics and opening supply chains for consumer and influencer participation.
The New Retail Drives Growth For China
This is what Ma calls ‘The New Retail’ — a concept he trialled in 2016, and which enables seamless engagement between online and offline retail, using data and technology. For Ma, success has meant enabling and emboldening a nationwide embrace of infrastructure and championing porous supply chains to encourage ecommerce. For China, ecommerce isn’t either/or but both/and. The national strategy is one of growing retail and ecommerce for all.
Back home a Daily Maverick piece headlined not-so-super supermarkets: Corporate retailers are killing off the spaza shop economy points to the complexity of SA’s retail market and how relatively small and inter-related it is. Of course, Amazon represents a threat. But as is clearly evidenced by this research, local brands are hurting their own markets too. To grow the market retailers clearly need to move beyond self-interest and start programmes to bring potential new shoppers like Nerina van Niekerk online — and also bring new suppliers on board and grow the market. Trust is another big factor. Let’s finish Nerina van Niekerk’s story.
Trust Is Scale’s Biggest Blocker
A beauty blogging aspirant, van Niekerk leads a busy life. She’s studying, but when she’s not needed on campus, she commutes between Fish Hoek, Cape Town, and has a side hustle as an online moderator in forums. Like most students who’re adulting, van Niekerk holds down a couple of jobs and feels really embarrassed about not being able to shop online. Her trust issue is something she’d love to change. All she needs is someone with the patience to sit down and show her how. Despite telling this story at a number of conferences, no retailer has reached out and shown van Niekerk how to shop.
Like most consumers across the globe who never buy goods or services digitally, Nerina’s chief concern is one of Trust. Research shows that the number one reason people don’t shop online is a lack of trust (49%).
How can retailers grow consumer trust? The lesson from China is that retailers and retail brands should collaborate to grow infrastructure, influencers and interest and to grow the entire retail sector. Familiarity and use grows trust.
Ultimately digital transformation is the enabling of markets, not killing the goose that laid the golden egg. In SA an also/and approach is required to grow the market for everyone’s interest. And this starts with growing trust in brands by enabling better market participation and enabling a greater stake in the ecommerce trade.