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The new age of retail

Lulama Qongqo, Mergence Investment Managers

Following the news DionWired is closing its stores, analysts and industry players say traditional retailers need to reorganise their channel ecosystems, or risk closing shop. 

Analysts and industry players believe traditional retailers need to up their game and reorganise their channel ecosystems, or risk being driven out of the market, which is just what’s happened to Massmart’s DionWired.

Massmart announced in mid-January that it would be closing 34 DionWired and Masscash stores, and that it would be offering 24-hour counselling services to the over 1 400 employees affected. Competitors to DionWired include Game and Makro, which are also owned by Massmart. There is also Matrix and Incredible Connection. Makro rolled out a new e-commerce platform in February 2019. 

Lulama Qongqo, investment analyst at Mergence Investment Managers, says she expects other stores in the same market to close, as online shopping becomes more popular.

“In pursuit of convenience and affordability, consumers will tend to go for the cheapest product online. Branded electronics are commoditised in the sense that it doesn’t matter where or how you buy the electronics; the specs don’t change just because you bought them at a certain store.”

 

Paying the rent

Other challenges include the high cost of doing business, of which rent is a major component, says Qongqo. Companies will also struggle to compete against Takealot, which has the scale and can offer steep discounts.

Meanwhile, there are some measures brick-and-mortar retailers can take to survive.

“Firstly, they need to be the best at disrupting themselves by growing their online stores more aggressively while shrinking space and converting the remaining space to showroom space,” she suggests.

“It’s easier said than done because having a website where they sell goods is only the start – they need to invest in distribution to ensure that they deliver the quickest, with the lowest delivery fees (if any) and ensure that their online and physical customer support services are the best.

“When consumers walk into the store to buy commoditised electronic goods, they check prices across platforms in real-time on their smartphones and are swift to walk out if the store does not have the lowest price for the searched item.”

Despite this, it’s hard to underestimate the value of a proficient salesperson.

“The reason it’s important for the retailers to improve their instore customer service is because being able to speak to someone with good product knowledge and test a product instore makes the effort of going into the physical store worth it, instead of shopping at Takealot, for example,” Qongqo says, adding that online shopping is still in its infancy in South Africa, and traditional retailers still have the lion share of sales.

“They (retailers) should use their market dominance and scale to negotiate better prices with their suppliers so that they, too, can compete profitably.”

She believes that Massmart still has a chance to become a leading online South African retailer, notwithstanding the challenges that come with serving customers on multiple platforms, but it will not be easy.

Massmart still has a high market share, but she warns of a ‘copy-and-paste’ online retail strategy across their product categories because what works for food or clothing will not necessarily work for electronics.


Lack of consumer enthusiasm

For analyst and MD of World Wide Worx, Arthur Goldstuck, the DionWired scenario points to the lack of consumer enthusiasm for high-end electronics at high-end stores.

He says it’s not only high prices that have kept consumers away from these stores, but also the plethora of online stores that allow for instant price comparison.

 “Any store that cannot stand up to such scrutiny will have a hard time surviving,” says Goldstuck.

Retailers need to do their homework on what their customers want and when they will be willing to pay a premium, he says. They also need to see what’s available online, and at what prices. “Only then can they take the third step, which is to differentiate themselves. There are many ways to do that, which will depend on both appetite and brand proposition.

“The mobile phone represents the single biggest challenge, as it is the tool that will kill any uncompetitive store. High overheads represent the next big challenge, as it is the factor that can prevent competing on price and range.”

Goldstuck says retailers need to learn elastic availability, which means having a supply chain that can quickly fulfil demand for a product that’s not available in the store. “It’s the 21st-century answer to the 20th-century's just-in-time inventory.”

Gerhard Pretorius, retail manager at Drive Control Corporation, says with pricing coming increasingly under pressure, channel players should start focusing on services and, ultimately, become more creative around developing deals and value offerings.

“Margins are a growing concern everywhere and getting feet in the door should be the highest priority right now. Consumers are spending more time buying absolute necessities and holding off a bit longer on electronics. With this in mind, driving better deals with added value would be key,” says Pretorius.

He adds that load-shedding will only increase the pressure on retailers and resellers. “The industry will increasingly be under pressure, amplified by the country’s economic climate. Resellers and retailers, however, that are adding real value and offering real service without any additional hidden costs will come out on top.”

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