South Africa’s largest online store Takealot is facing major challenges as its latest financial results showed that the ecommerce giant is feeling the impact of increased competition, labour issues, and a Competition Commission investigation.
Takealot’s results for the six months ended 30 September 2022 showed that it grew gross merchandise value (GMV) by 15% and revenue by 13%.
Although the growth looks encouraging, it has slowed significantly over the last few years.
Between 2019 and 2021, Takealot increased its growth over the interim period from 25% to 63%. This growth has slowed significantly to 13%.
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Takealot’s gross merchandise value sales growth also plummeted from 72% to 15% over the last year.
An even greater concern for Takealot is that its loss increased from $2 million for the six months to September 2021 to $13 million for the six months to September 2022.
Takealot’s trading margin has also worsened to -3% versus -1% in the prior period.
Takealot owner Naspers said profitability decreased because of higher fuel surcharges, investments in new warehouses, and discounted inventory clearance.
Former Takealot CEO Kim Reid said the company was set to become profitable in 2021 and was on track to achieve this goal.
Between 2019 and 2021, Takealot significantly reduced its losses which gave the market confidence that it would reach profitability in the 2022 financial year.
However, Naspers’ 2022 financial results revealed that Takealot recorded the same trading loss as the previous year – $7 million.
The $13 million loss over the last six months has now raised doubt about Takealot turning profitable in the 2023 financial year. The chart below shows Takealot’s interim losses for the past four years.
Takealot’s slower growth rate and bigger loss raise concerns that it has reached the end of its strong growth phase.
It also means that Takealot is struggling to contain costs, with its operating costs outpacing its revenue growth. For Takealot to turn profitable, it will have to increase margins, reduce costs, and become more efficient.
However, it is easier said than done. The ecommerce giant is under increasing pressure from competitors, labour, and its marketplace partners.
Traditional brick-and-mortar retailers, including Massmart (Game, Makro, and Builders), JD Group (Everyshop), and TFG (Bash.com), are after a slice of Takealot’s market share.
The increased competition puts pressure on prices and margins, which may partly be why Takealot is struggling to turn a profit.
Another problem for Takealot is that it has become big enough to attract the attention of labour unions.
Hundreds of Takealot workers joined an unprotected strike at the company’s Montague Gardens warehouse in July. Work stopped, with employees demanding permanent positions and saying they were not treated fairly and equally.
It is now more difficult for Takealot to cut employee expenses and optimise its workforce for low and high seasons.
Another headache for the online retailer is the Competition Commission’s Online Platforms Market Inquiry’s provisional report.
The inquiry found a conflict of interest in Takealot operating a marketplace for third-party sellers and selling its own retail products.
It argued that this could result in self-preferencing conduct, including product gating, preferential display ads and promotions, and unfair access to third-party data about successful products.
The report recommended an internal structural separation of retail from the marketplace to implement equitable and competitively neutral processes.
Although Takealot does not agree with some of the findings, it is an issue which can have significant implications for the company.
To add even more fuel to the fire, the world’s largest ecommerce company, Amazon, is planning to launch a local marketplace in South Africa next year.
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Amazon’s Prime membership programme will also reportedly be available to South Africans shortly after launch.
Amazon is well-known for its aggressive prices, and should it launch an online shopping marketplace in South Africa, there will be significant pricing pressure on Takealot.
Takealot must navigate all of these challenges with a new management team under the guidance of CEO Mamongae Mahlare. Mahlare, who served as Illovo Sugar South Africa managing director before joining Takealot, is new to ecommerce.
Numerous former executives, including founder and CEO Kim Reid, CFO Gary Altini, Superbalist founders Claude Hanan and Luke Jedeikin, and Mr D Food CEO Devin Sinclair, have left the company.
Takealot’s mounting challenges are clearly visible in the company’s financial results shown below.
Kelechi Deca
Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry