Battling the Giants: How South African Retailers Can Compete with Temu and Shein

In recent years, South African retailers have been facing an unprecedented challenge. Online retail giants like Temu and Shein have stormed the market, disrupting the local retail landscape and posing significant threats to homegrown businesses. As business confidence wavers amidst economic uncertainties, the pressure on local retailers, especially in the clothing sector, is palpable. 

These international e-commerce behemoths are not just competitors; they are a looming threat to the survival of beloved local brands. With every click and online purchase, the stakes for South African retailers have never been higher.

The Current Retail Landscape

According to the Bureau for Economic Research’s Retail Survey for 2024Q2, business confidence among retailers has experienced a slight increase, reaching 39%, which is on par with the long-term average. This boost in confidence can be attributed to less load-shedding than expected and a slight moderation in headline inflation. However, this optimism is not evenly distributed across all retail sectors.

For instance, semi-durable goods retailers, such as those dealing in textiles, clothing, footwear, and leather goods, have seen a significant drop in confidence from 68% in 2024Q1 to 38%. This decline is partly due to weak sales in the first quarter of 2024, following a strong period during the Covid-19 pandemic and the 2023 Rugby World Cup. Online competitors like Temu and Shein have exacerbated this decline, straining the sales of domestic clothing retailers.

The Impact of Online Giants

Temu and Shein have captured significant market share by offering affordable and fashionable clothing, often at prices local retailers find hard to match. According to a report by the Marketing Research Foundation, Shein holds a 35% market share in women’s clothing, significantly outpacing local competitors like Mr Price (7%) and Superbalist (3%). Their ability to leverage loopholes in the South African tax system allowed them to offer products at lower prices, creating an uneven playing field. This competitive edge has been a critical factor in their rapid growth and popularity among South African consumers.

Upcoming Tax Changes

To address this disparity, the South African Revenue Service (SARS) is set to implement new tax regulations from 1 July 2024. These changes will impose a 45% import duty plus VAT on all clothing parcels, closing the tax loophole that Temu and Shein have exploited. This move aims to level the playing field for local retailers who have been at a disadvantage due to the existing tax structures.

Consumer Reaction and Market Dynamics

The impending tax changes have sparked backlash among consumers, many of whom rely on the affordability of Temu and Shein for their clothing needs. A petition against the tax increase has garnered over 15,000 signatures, highlighting the tension between consumer interests and the need to protect local businesses.

Despite consumer concerns, industry experts argue that these changes are necessary to support the local economy and ensure fair competition. Michael Lawrence, executive director of the National Clothing Retail Federation, emphasises that the new taxes will benefit the local manufacturing sector and, by extension, more vulnerable consumers who rely on employment in this industry.

Lawrence points out that while consumers are facing higher costs, the long-term benefits include more robust local businesses and increased job security. “The household purse for all segments of the population has been under substantive stress for the last decade,” Lawrence notes, “but these measures are crucial for sustaining the local economy and supporting South African workers.”

Strategies for Local Retailers

In light of these challenges, local retailers need to adapt and innovate to remain competitive. Here are some strategies that can help:

Enhance Online Experiences

Local retailers can improve their online presence by investing in user-friendly websites, mobile apps, and efficient customer service. Offering seamless online shopping experiences, including easy returns and responsive customer support, can help attract and retain customers.

Partner with Established E-commerce Platforms

Collaborating with well-known e-commerce platforms like Takealot can provide local retailers with greater visibility and access to a broader customer base. Such partnerships can help level the playing field against international giants.

Leverage Local Courier Services

Utilising local courier services that offer reliable and efficient delivery can enhance customer satisfaction. Services like The Courier Guy, with their extensive network and innovative solutions, can provide a competitive edge in logistics.

Optimise In-store Experiences

Ensuring a seamless in-store experience is crucial for retaining customers. This includes having a robust point-of-sale (POS) system, providing free Wi-Fi, and offering personalised customer service. Creating an enjoyable and efficient shopping environment can encourage repeat business.

Implement Omnichannel Strategies

Adopting an omnichannel approach that integrates online and offline shopping experiences can cater to diverse customer preferences. This includes options like click-and-collect, where customers can order online and pick up in-store, and offering consistent promotions across all channels.

Conclusion

While international e-commerce giants like Temu and Shein pose significant challenges to South African retailers, there are strategies that local businesses can adopt to stay competitive. By enhancing online experiences, partnering with established platforms, leveraging local couriers, optimising in-store experiences, and implementing omnichannel strategies, South African retailers can not only survive but thrive in this dynamic market. Remember, local is lekker, and with the right approach, local businesses can turn challenges into opportunities for growth and innovation.

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