A look at how the rise of ecommerce is shaping the property sector and how sustainable our consumption really is.
When online shopping first appeared in the world of retail, it was hard to believe that it would become what it is today. The initial scepticism of online shopping stemmed predominantly from the “unknown”: not knowing where the “store” actually is; not knowing whom you would be dealing with on the other side of the screen and of course, very importantly, the question of security: is it safe for me to send my credit card and personal details out into the Web?
I remember my first online purchase; it was not so long ago actually. I could see the appeal – the endless options, skipping from one site to the next, browsing through sales, discounts and international brands that I had never had access to before. After adding a couple of items to the shopping cart, ready for payment, I felt a sense of fear growing, looking at nearly a quarter of my monthly disposal income waiting to be spent. After some deliberation, I cancelled my big purchase, fearing that I was sending my money into cyberspace and that I would surely be conned.
Many people have gone through relatively similar feelings when they first started shopping online. Now that the first waves of scepticism have dissipated, it’s almost hard to think of a world without the convenience of online shopping – knowing that you can confidently transfer your money through the Web and a few days or weeks later, you have your package, waiting to be signed for.
Today, aided by the rising number of mobile phone users, online shopping is a titan of an industry; and it’s growing not only in sales figures, but in influence as well.
More and more people are incorporating the Internet into their shopping habits. In fact, it is estimated that around 72% of millennials first consult online sources before heading out to a store or mall to make a purchase. Checking and comparing prices, availability as well as reading reviews has become the basic part of the future generation’s shopping habits. In 2014, the global online sales figure totalled over US$2-trillion and it is expected to continue growing. In South Africa – although there is a lot of room for growth in online shopping – we have proven to engage very well with shopping online.
A study done by Ipsos – surveying a representative 501 adults who have access to the Internet through a computer, tablet or mobile phone – gave interesting insights into online shopping in South Africa. The study found that although ecommerce penetration is still relatively low compared to other countries around the world, the number will triple in the near future, elevating South Africa as a major player in online shopping in southern Africa.
The study found that among the most popular online purchases for South Africans were digital goods, tickets for events and travel, fashion items and entertainment. It’s really not difficult to see the allure of online shopping, particularly in a South African context, where we endured a trying economic climate in recent times. Ipsos found that there were several key attractions for consumers to choose online shopping above traditional brick and mortar shops.
The cost of an item is usually lower. Owing to the fact that you’re not buying from a shop that potentially has high costs in its operations, such as rent, staff salaries, electricity and decor, you are able to purchase items that do not have these costs factored into their pricing. The fact that you are able to set delivery dates and places, and often even times of delivery, means buyers have more flexibility and control over their purchase – also an identified motivator to shop online. With certain services available when shopping online, if you are unhappy with the product, having it picked up and returned, or swapped, limits your own travelling time and costs which is, for some people, a great attraction.
With the growing number of online shoppers, more sophisticated ways of completing your transaction have been developed, meaning that now more than ever, it is easier and safer to shop online. Security is definitely one of the greatest determinants for potential online shoppers. In fact, Ipsos found that 67% of those that they surveyed who did not shop online stated that security is what dissuades them from becoming online shoppers. Needless to say, once perceptions like this fall away, a greater group of people will start participating in the online shopping arena. Ipsos has found exactly this, that online shopping in South Africa is set to massively expand in the near future. This, however, poses interesting questions about the dynamics of shopping and how this will affect consumerism going forward.
Recently it has been suggested that online shopping will affect people in more ways than just the habits surrounding how we do our shopping. Interestingly, there are several ways that ecommerce affects the world around us, but which largely go unnoticed, due to the inconspicuous way in which online shopping operates. However, it has been suggested that online shopping could come to influence both our property markets, as well as the environment. These are not particularly obvious connections to make when considering personal online shopping. New players in the retail scene are disrupting the traditional value chains – using technology and innovative selling platforms to come in between consumers and brick and mortar retail spaces.
According to the experts in the field, new players in the online arena are disrupting this value chain by moving themselves in between the retailer and the consumer, for instance, sometimes even cutting several players out of the value chain completely, by granting the manufacturer direct access to the consumer.
If the projected growth of online shopping materialises, which seems to be almost guaranteed at this point, what happens to the traditional retail spaces of the value chain, including the places we once shopped in? Experts believe that currently there is a mass migration of consumers, moving from the physical world, onto digital platforms.
Traditional ways of shopping, also called the “single channel”, where a shopper uses the brick and mortar store as the space in which to complete the entire transaction, can simply not compete with online shopping directly – especially in the coming years. The effects of online shopping open up new avenues of business where retailers can focus their attention, which is becoming increasingly important in a world with ever-changing economic challenges.
Freeing up many of the restraints associated with only having brick and mortar shops means that retailers can focus their attention and resources into expanding and diversifying their businesses, particularly in such ways so as to penetrate markets that were previously closed off to them.
Earlier this year, The Telegraph reported on the growing demand for warehouse space in the UK, stating that retailers were feeling the pressure of delivering to a growing number of consumers. In order to meet the demand, huge amounts of warehouse space will be needed to store goods before being delivered to customers.
This deficit will affect even the biggest players in the arena, such as Amazon. Retailers have been warned that warehouse space – and a lot of it – will be needed to keep up with the growing world of online shopping. Experts in the field have even suggested that if the retailers want to keep up, they will have to start investing in warehouse construction themselves, because the property market as it currently stands will not be able to keep up with this demand.
This will most likely be the reality, as retailers are continuously increasing their efforts to deliver a better service to online shoppers. Faster services and the opportunity to shop from a large and diverse catalogue will be the competitive advantage in ecommerce going forward. When thinking of warehouses – especially the areas in which they are normally found – images of lacklustre, sombre and particularly unglamorous scenes come to mind. In many cities, the logistic hubs and warehouse districts are very much on the periphery of coveted real estate. However, this will likely change relatively soon, as suddenly it is these very spaces that will become the epicentre of the retail sector.
Africa in particular faces several challenges not shared by more developed countries such as the UK. Although the space deficit will most certainly be felt on the continent as the number of online consumers grow, issues surrounding logistics and transportation will be one of the main obstacles to overcome. Although road infrastructure in South Africa is of a reasonably high quality by African standards, there is room for improvement if we are to prepare ourselves for a new era of retail.
The rise of ecommerce brings with it new economic and environmental dynamics. We have looked at the way the property market could potentially be impacted by ecommerce. The trends are there and it seems that in South Africa we are going to follow suit in the near future. However, one area of online shopping that rarely makes it into our discussions is its impact on the environment. It has previously been argued that ecommerce could alleviate the pressure put on the environment for many reasons, including the fact that fewer cars would technically be on the roads; fewer retail spaces would need power and maintenance and so forth.
When delivering a product that has been ordered online, there is often a combination of transportation modes, such as air and road. Not only this, but items are then wrapped individually, which is not the case in a normal store. The combination of transportation modes and packaging alone, mean that the rise of online shopping will definitely have an impact on the environment. As yet, it is unclear as to the level to which it will affect our environment. But what is clear is that our consumption habits are increasing annually, and experts have warned that we should slow down, or at the very least, be more selective in what it is we choose to buy. With the decreasing costs associated with buying textile items, the US alone produces about 11 million tonnes of textile waste every year. The demand that consumers are placing on retailers to have an abundant stock of items, means that we are now consuming and discarding at a much higher rate than we have ever done before.
Are retail spaces obsolete?
The short answer at this moment is definitely not. Many retailers are benefiting from a combination of traditional and new ways of selling and people are moving into what is known as the “multi-channel”, i.e. the use of traditional shopping spaces to meet some consumer needs; as well as online shopping to meet others.
Mid-tier retailers will feel the biggest change, according to Cassidy Turley – a retail real estate firm based in the US. It seems at this stage, high-end and discount retailers will still benefit from their traditional brick and mortar shops. An increasing number of people within the middle class are turning to the Internet to make purchases, forcing retailers to reconsider the way in which they cater to this income bracket.
Certain shopping “hotspots” are also unlikely to be affected to a great extent in the foreseeable future. Areas that are renowned for their shopping experiences should still benefit greatly from brick and mortar shops, due to high-foot traffic and tourism attractions. This begs the question of where the greatest brunt will be felt.
Will it be retailers on the periphery of bigger cities, who are unable to compete with the low cost of online offerings? Only time will tell. In South Africa however, online shopping is set to expand very quickly; what we can do now is prepare ourselves for the change in dynamics set to come. Owing to the fact that the rand is constantly under increasing pressure, it is also important for us to do a lot more with less. From our warehouses, to the systems and operations of these spaces, we will have to streamline and become more sophisticated to keep up with the increasing demand of online shoppers.
There is also the opportunity for related sectors to benefit from the rise in online shopping. Traditionally, the logistics surrounding the transportation of goods were less complicated compared to the dynamics of online shopping. Online retailers now have to face the growing pressure of delivering products to individual addresses, making sure that they keep their client base happy. This is a monumental task, as speed and efficiency of delivery are what contribute to the allure of shopping online in the first place. This means that retailers will have to increasingly rely on logistics and distribution specialists going forward.