The biggest news for the South African online shopping world was today’s announcement that Kalahari.com and Takealot.com would be merging into one giant online shopping company, once all processes have been followed of course. One of the reasons giving for the merger is that both companies have been operating on a loss, and both believe it’s not possible to make a profit while in competition.
We asked Raru director Waine Smith, who was one of the original founders of Take2 (which eventually morphed into Takealot.com), whether or not he agreed with that assessment of the state of the market for online shopping. Smith said:
No, I don’t believe their reasons impact on the commercial potential of the market, but is more a reflection of the manner in which they’ve chosen to compete with each other. I touched on it before, I suspect that the two companies were involved in, what was ultimately, an unsustainable pricing war. Coupled to this they both regularly gave out incentive vouchers to customers, which were quickly shared online. So if you add selling products at almost no markup (and in many cases at below cost price) with giving customers the money to shop with, it’s clearly a formula that can’t work for ever. While the loss leader concept works well in traditional retail, the problem in the online space is that customers can cherry pick the deals they want from any online retailer, and aren’t bound to buy the normally priced items, which is what is intended. Add this to high overheads, a corporate infrastructure and massive advertising campaigns, and it’s not hard to understand why they felt it wasn’t possible to continue on the path they were on.
As a matter of staying afloat, Smith explains that it comes down to good customer service, and to adapt to changing market environments.
Our approach is very different, and much more suited to the Southern African marketplace. We always try to offer the best price possible on the widest range of products, all the time, and to work hard at keeping overheads as low as possible. It’s the easier to then remain nimble, and to be able to quickly pivot, in what is a constantly changing environment. This allows us to focus on the product and the customer, which I believe is essential. This consistency of service is essential to developing consumer trust, which is a vital factor for a long term business. If you consider that year after year Yuppiechef wins e-commerce awards, without engaging in price wars or massive advertising campaigns, it shows that attention to detail and an obsession towards service can both keep customers happy, and ensure a sustainable business without constantly incurring the losses the two companies have.” outlined as the reasons for their merger.
Evan Shein, Operations Director of another online retailer Shop and Ship, said that while the news is significant, it won’t necessarily impact the niche markets, in which it plays. Just as with Raru, ShopandShip has a strong focus customer service
We keep a very close eye on developments within the industry and have been watching the Takealot Vs. Kalahari war for market share over the past few years. We have been of the opinion that something will have to give between the two businesses as the current online landscape is not yet at a level where continued losses can be absorbed, with a medium-long term view of relying on growth to recoup funds. For the smaller online retailers, the merger simply re-enforces our ideology of growing in line with the industry while focusing on service and customer support. I believe it is important to note that the merger is being planned due to a need for survival from both parties. When it comes to a profitable online business, I think comparing apples with apples is important. The joint statement relates to Takealot and Kalahari, while we focus on niche markets without exorbitant marketing budgets and overhead costs. We rely on our service levels aiding us to convert customers into loyal repeat customers. While we will watch the developments of the merger closely, we remain focused on our core business and will not be side tracked into reacting unnecessarily. For now, and always, it is business as usual at Shop and Ship Online, where service comes standard!
Should other retailers be scared of Takeahari/Kalalot? As ever, your thoughts below.