South Africa’s retail sector has been grappling with weak economic conditions, characterised by stagnant inflation-adjusted GDP over the past five years, persistently high unemployment, and elevated inflation. While consumer spending on essentials like groceries has seen a minor uptick in recent years, discretionary spending on items such as apparel, home goods, and electronics has decreased significantly.

Over the next five years, South African consumers’ resilience will continue to be tested, with economists predicting a modest 2% annual real GDP growth. According to a survey released by Boston Consulting Group (BCG) titled Foreign e-tailers are here! Is South African e-commerce ready? around 20% of consumers are less optimistic than they were two years ago, 80% reported stagnant or declining household incomes, and nearly 20% plan to increase their loans. “Although the post-election period has brought a slight boost in optimism, the survey highlights a more burdened consumer with an increased reliance on credit,” said Vishakha Chopra, Project Lead in BCG’s Consumer Practice.

Vishakha added that amidst this challenging retail landscape, e-commerce presents a silver lining: “Even against the backdrop of a weakened retail sector, e-commerce has grown by over 30% annually since 2019, driven by factors such as the COVID-19 pandemic, favourable regulations like stricter data privacy laws, and service improvements such as Takealot’s same-day delivery and Checkers Sixty60’s 1-hour delivery service. Our research further shows that one in every three South Africans with internet access has shopped online in the past 12 months – a trend that is on the rise.”

The relatively small South African e-commerce industry, accounting for approximately 5-7% of the retail market is, according to market estimates, expected to boom with an annual growth rate exceeding 20% over the next five years. As typically seen in nascent markets that are low on the maturity curve, the local e-commerce landscape is currently characterised by a high degree of fragmentation, with several competitors. As the market matures, it is expected to follow the consolidation pattern observed in more digitally mature markets globally, often stabilising with two major generalist retailers dominating about 50% of the market.

“Although some larger South African firms like Takealot and Checkers have a head-start, the market has yet to coalesce around dominant digital frontrunners,” said Thomas Kingombe Kock, Managing Director and Partner at BCG, adding that the entry of foreign marketplaces—Shein, Temu, and Amazon—marks a new phase of digital competition locally and potentially across sub-Saharan Africa. These foreign giants have indicated their plans to use South Africa as an entry point for their regional expansion into sub-Saharan Africa.”

“Shein and Temu bring expansive variety but face challenges of slower international deliveries and complex customs processes. Amazon, however, is building local inventories to enable faster delivery in major metros, setting itself apart operationally from its Chinese counterparts,” added Thomas.

Amazon ‘soft launched’ in South Africa on 7 May, using its time-tested launch playbook. However, the launch appears rushed and under-prepared, with several out-of-stock products. Amazon introduced 15 categories and 0.15 million products, a stark contrast to its launch in Australia, where it offered 100 million SKUs in the first year. It appears they have taken a gradual approach aiming to enhance the shopping experience and add new sellers over time.

One area where Amazon could disrupt the market is by leveraging its sophisticated pricing analytics, enabling it to change prices every 90 seconds to match competitors on key products. This dynamic pricing approach is particularly relevant in South Africa, a highly price-sensitive market where 27% of respondents surveyed confirmed they compare prices across sites and are willing to wait longer for lower prices, as seen with Shein and Temu.

“Whilst muted, Amazon’s launch reflects some of its ‘customer obsession’ principle, offering same-day and next-day delivery on select first-party products, 24/7 customer service, and a 30-day returns policy,” said Vishakha.

However, Amazon faces significant logistics challenges in South Africa due in part to the country’s isolation from other Amazon markets complicating operations and hindering the onboarding and fulfilment from international sellers, which are crucial for product variety and differentiation.

It is in these fulfilment capabilities that Amazon is looking to gain traction. When 75% of consumers live outside the formal address system, last-mile fulfilment is critical in South Africa. Partnering with providers like Pargo and Pudo to leverage local pick-up points to reach remote areas, has been a positive step but local competitors like Takealot hold a logistical edge with established same-day delivery networks, while other players utilise store networks or hubs to boost growth and accessibility.

For long term success, Amazon will rely on its global Flywheel strategy, which leverages an expansive product selection to drive consumer traffic, attract more sellers, and maintain a low-cost structure to offer competitive prices. Given its’s strengths, local incumbents need proactive strategies to compete and prevent market share erosion. Takealot has already responded with a R39 subscription service offering free delivery, with more changes expected in the coming months.

Looking to future market growth, Thomas commented, “While economic headwinds persist and consumer spending remains constrained, we see the entry of global e-commerce giants into the South African market as both a challenge and an opportunity for local retailers.”

From a challenge perspective, these international players bring with them sophisticated pricing strategies, vast product selections, and a willingness to invest heavily to gain market share.

Their arrival also raises the bar for customer expectations in terms of price, convenience, and choice, pushing local players to adapt quickly to compete effectively and retain their customer base.

This leads to the opportunity, a requirement of investment in key e-commerce enablers, including dynamic pricing strategies to match the aggressive pricing tactics of global players. It may also comprise hyper-personalised loyalty programmes to enhance customer engagement and retention, robust logistics infrastructure to ensure fast and reliable delivery, particularly in remote areas, and a flexible and scalable technology platform to provide a seamless user experience.

Those who can successfully adapt and innovate will be well-positioned to thrive in this evolving market. The success stories of local players in other markets, such as Mercado Libre in Brazil and Bol.com in the Netherlands, prove that it is possible to compete effectively against global giants by focusing on local strengths and customer needs.

“There is no doubt that the South African e-commerce market is dynamic and rapidly evolving. And, as it matures and merges, the winners will be those who can anticipate and meet the ever-increasing expectations consumers,” concludes Vishakha.

Amazon’s arrival in SA is likely to shake up the burgeoning e-commerce market. With the promise of hassle-free shopping, fast delivery and an extensive network of pickup points, Amazon’s entry into the market will undoubtedly raise customer expectations.

The US e-commerce giant is poised to challenge established local players, especially leading online retailer Takealot.  However, Amazon needs to be careful. SA is a difficult market to conquer. Its vast geography and varied terrain pose logistical challenges, including transport, warehousing and last-mile delivery. ..