Takealot under pressure
Takealot is under siege with increased competition from large brick-and-mortar retailers, Amazon.com is planning to launch local operations, it has lost many top executives, and the Competition Commission is on its back.
Takealot was launched in June 2011, following the acquisition of Take2, an online retail company started by seven investors in Cape Town in 2002.
Backed by large investors with deep pockets, Takealot invested billions to become the dominant commerce platform in South Africa.
Along the way, Takealot merged with Naspers-owned Kalahari.com, acquired Mr Delivery to secure its logistics network, and bought Superbalist.com.
The acquisitions bolstered its market share and brought valuable ecommerce skills into the company.
Takealot CEO Kim Reid and CFO Gary Altini could now draw on the experience of Mr D Food CEO Devin Sinclair and Superbalist founders Claude Hanan and Luke Jedeikin to grow operations.
Reid has assembled a dream team who created South Africa’s top ecommerce platform offering a world-class online shopping experience with a wide range of products and excellent support.
Takelot also boasts South Africa’s best online shopping distribution network with pickup points across the country and warehouses in Johannesburg, Durban, and Cape Town.
Creating Africa’s premier ecommerce platform did not come cheap. Takealot incurred large losses over the last decade, but there was light at the end of the tunnel.
Naspers, which owns Takealot, revealed in its results for the six months ending September 2021 that Takealot grew revenue by 36% and narrowed trading losses to near breakeven.
The performance was in line with Reid’s comments in August 2019 that Takealot was set to become profitable by the end of 2021.
However, this did not happen. Naspers’ 2022 financial results revealed that it recorded the same trading loss as last year — $7 million.
The loss surprised many investors as Takealot’s revenue continued to show strong growth.
Over the last financial year, Takealot grew revenue by 36.5% — from $606 million to $827 million.
Superbalist and Takealot.com grew revenue by 55% and 29%, respectively, and Mr. D Food grew orders by 51%.
Despite the excellent revenue growth, Takealot made the same $7 million trading loss in 2022 as in 2021.
It means that since 2021, each additional dollar of revenue generated caused an equivalent amount of operating expenses.
The Takealot Group has therefore done a poor job in managing its operational costs.
Naspers did not give reasons for Takealot’s poor profitability and missing Reid’s profitability target, leaving investors with many questions.
Recent developments around Takealot and the South African ecommerce market may explain these problems.
- Increased competition in South Africa’s online shopping market.
- An exodus of top Takealot Group executives.
- Amazon.com planning to launch operations in South Africa.
- The Competition Commission taking aim at Takealot.
- Takealot workers are putting pressure on the company with strike action.
Let us take a look at each of these issues in more detail.
Increased competition
Takealot is facing increased competition from large brick-and-mortar retailers, including Massmart (Game, Makro, and Builders), JD Group (Everyshop), and TFG (Bash.com).
In March 2021, JD Group launched Everyshop with a wide range of technology products, computers, appliances, and other products from leading brands.
Massmart — the second largest online retailer behind Takealot through its Makro, Game, and Builders online stores — is investing heavily in its ecommerce operations.
Massmart CEO Mitchell Slape said there are many opportunities to continue growing and capturing market share.
As part of its online drive, Massmart employed Sylvester John, the former Walmart North America VP for last-mile delivery, to lead its ecommerce team.
It has also employed Walmart’s technology to improve its websites, is moving towards a mobile-first strategy, and has acquired the last-mile delivery company Wumdrop.
The strategy is already paying off with improved delivery times and higher customer satisfaction ratings.
Another large South African retailer, The Foschini Group, has created TFG Labs to shake up retail and ecommerce in South Africa.
TFG Labs is run by ex-Takealot executives and Superbalist founders Claude Hanan and Luke Jedeikin.
TFG Labs has recently launched Bash, South Africa’s largest omnichannel fashion and lifestyle shopping platform, offering customers a range of clothing, tech products, and gaming equipment.
Increased competition puts pressure on prices and margins, which may partly be why Takealot is struggling to turn a profit.
Amazon.com planning to launch in South Africa
Another development that poses a significant threat to Takealot and can change the local ecommerce landscape is Amazon’s plan to launch local operations.
Leaked documents revealed that Amazon expects to launch its marketplace in South Africa in February 2023. The plan is codenamed “Project Fela”.
It also plans to launch its Fulfillment by Amazon service for third-party sellers.
Amazon’s Prime membership programme will also reportedly be available to South Africans shortly after launch.
Although Amazon has not confirmed these plans, MyBroadband reported that Amazon had secured warehouse space in South Africa.
The company is also reportedly in discussions with courier companies and local fast-moving consumer goods (FMCG) retailers in the country.
Amazon is well-known for its aggressive prices, and should it launch an online shopping marketplace in South Africa, there will be increased pricing pressure on Takealot.
Exodus of top executives at Takealot
Takealot has experienced an exodus of top executives over the last two-and-a-half years.
Superbalist founders Claude Hanan and Luke Jedeikin left the company at the beginning of 2020, which was the start of many executive resignations.
In February 2021, Takealot CEO Kim Reid and CFO Gary Altini announced they would step down as Takealot executives.
Reid was instrumental in building Takealot into a dominant force, and Altini served as his right-hand man from the beginning.
While Reid stayed on as chairman, stepping back from Takealot’s day-to-day operations was a big loss to the company.
Not long afterwards, in July 2021, Mr D Food CEO Devin Sinclair left Takealot. He is now the COO of the UK-based Sproutl.
Many other top executives also resigned over this period, which may point to retention challenges at Takealot.
Takealot is now under the leadership of Mamongae Mahlare, who served as Illovo Sugar South Africa managing director before joining the online retailer.
Mahlare has not had many media engagements during her tenure, which makes it difficult to assess her experience and strategy for the company.
Competition Commission Inquiry
The Competition Commission’s Online Platforms Market Inquiry has published a provisional report with recommendations that could have severe ramifications for Takealot.
The inquiry found a conflict of interest in Takealot operating a marketplace for third-party sellers and selling its own retail products.
It argued this could result in self-preferencing conduct, including:
- Product gating.
- Retail buyers being given access to third-party data about successful products.
- Preferential display ads and promotions.
“The lack of a speedy resolution process also adds to the costs of sellers,” the inquiry said.
It recommended an internal structural separation of retail from the marketplace to implement equitable and competitively neutral processes.
Takealot said it does not agree with some of the Competition Commission’s provisional findings in its Online Intermediation Platforms Market Inquiry summary report.
“We have and will continue to engage with the panel on the provisional findings and will respond to the panel in full before the report is finalised,” it said in a statement.
On top of competitive pressures, a forced restructuring can greatly impact Takealot.
Takealot strike
In July, hundreds of Takealot workers joined an unprotected strike at the company’s Montague Gardens warehouse.
Work stopped with employees demanding permanent positions and saying they were not treated fairly and equally.
Takealot responded to the strike, saying it has tried numerous times to engage with them to address their concerns.
“We are disappointed that despite our attempts to discuss their concerns, they have opted not to return to work and follow the internal grievance processes and engage with the management,” it said.
The increased unionisation and strike action of ecommerce workers is a global phenomenon and may cause increased problems for Takealot in future.
Takealot under pressure
Increased competition, an executive exodus, the Competition Commission recommendation, and staff problems put additional pressure on Takealot.
If they increase Takealot’s cost base further, the online retailer may struggle to show significant profits in years to come.
This article was first published by Daily Investor and is republished with permission.
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