South African SMEs are selling online, but delivery costs remain a problem
South African small businesses have embraced online selling, but getting products to customers is proving more difficult than setting up an online store.
Selling Online
South African small businesses have embraced online selling, but getting products to customers is proving more difficult than setting up an online store.
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South African small businesses have embraced online selling, but getting products to customers is proving more difficult than setting up an online store. A business can receive orders through its website, social media or a marketplace and still struggle with the cost of fulfilling them. Courier charges, packaging, returned goods and platform fees all take money out of each sale. For businesses operating on tight margins, there is not much room for mistakes.
A new study by World Wide Worx, commissioned by Amazon, surveyed 1,400 South African small and medium sized businesses. It found that 86% of respondents generate sales online. However, only 32% of active online sellers use major marketplaces. The interesting part is what happens after the sale. The research found that 62% of online sellers struggle with logistics and delivery, while 46% have problems managing returns.
A courier bill can change the profit on an order
“Getting customers to buy online is only part of the job. For South African SMEs, the real challenge is delivering those orders without giving away too much of the profit.”
Consider a small business selling clothing online. A customer orders a jacket, but it does not fit. The item comes back, the business has to inspect it and another delivery may be needed when the customer requests a different size. The retailer has spent time and money on an order that has not yet produced a completed sale.
This is one of the problems smaller online retailers face. Larger retailers can negotiate delivery rates and operate their own distribution networks. A small business sending a few parcels a day may not have the same bargaining power. The situation becomes more complicated for businesses that also operate physical shops. World Wide Worx found that 76% of the surveyed businesses have a physical retail presence, while nearly two thirds have been selling online for at least six years.
That means many owners are managing shop customers, online orders and stock across different sales channels. If stock records are not updated properly, a business can end up selling an item online that has already been bought in-store.
Amazon wants a bigger share of the SME market
Amazon sees these difficulties as an opportunity to attract more South African sellers to its marketplace. Its Fulfilment by Amazon (FBA) service allows businesses to send stock to its facilities. Amazon then takes care of storage, packing, shipping, customer service and returns.
For a small retailer, this could remove some of the daily work involved in processing orders. It may also provide access to a delivery network that would be expensive to build independently. But sellers will need to look closely at the charges.
The research found that 48% of respondents were concerned about subscription and administration fees. Another 41% identified digital transaction charges as a problem. Robert Koen, Amazon's managing director for sub Saharan Africa, says business owners should compare marketplace costs with what they currently spend on running their own websites, employing staff and organising deliveries.
Amazon has been offering promotional referral fees of around 5%, together with fulfilment incentives for South African sellers. However, referral fees are not the only expense. Storage, fulfilment and other applicable charges also need to be included when calculating profit.
The export opportunity comes with its own costs
Amazon is also encouraging South African businesses to sell outside the country through its international marketplaces. The company operates in 23 countries, including the United States, United Kingdom, Brazil and Egypt. Eligible local sellers can list their products in these markets without having to build an entirely separate online store in each country.
For local manufacturers, this could create opportunities to sell products to customers they would otherwise struggle to reach. However, international orders bring additional responsibilities. Businesses have to account for shipping, customs, product requirements and the cost of handling returns across borders. They also need enough working capital to produce and send stock to customers. Amazon says it has invested more than $2.5 billion in South Africa over the past decade. Its local operations include nearly 5,000 pickup points, a fulfilment network and AI-powered tools for sellers.
Small businesses need to know what each sale is worth
The World Wide Worx findings raise an important issue for SMEs considering where and how to sell their products. An increase in online orders does not necessarily mean an increase in profit.
A business selling 200 products a month could be worse off than one selling 100 if its delivery, returns and platform costs are too high. Amazon's marketplace may work well for businesses that have enough sales volume to justify the fees. Others may find that using independent couriers or handling their own deliveries makes more financial sense.
For small businesses, the calculation is fairly simple: after paying for the product, packaging, delivery and selling fees, is there enough left to cover the other expenses and make a profit? That is the part of online retail that deserves more attention. Getting people to place orders is important, but making those orders profitable is what keeps a business going.
