E-Commerce Gains a Foothold in South Africa

In 18 months in business, commerce newcomer Zando.co.za has established itself as the country's top online fashion retailer.

JOHANNESBURG — In 18 months in business, commerce newcomer Zando.co.za has established itself as South Africa’s top online fashion retailer.

Zando went live at the end of January 2012, selling only shoes. Since then, the company has expanded to offer clothing, accessories, sports and beauty, which increased its appeal to customers, garnering more than 10 million views in the process. By May 2012, it had reached a consistent weekly unique visitor count of 200,000, according to Web analytics company Alexa, propelling Zando into the top five leading e-commerce Web sites in he country. By November, there were apparently more searches for Zando than for eBay within South Africa.

The company’s growth was no doubt boosted by an investment from J.P. Morgan Asset Management in September, to the tune of “double-digit million U.S. dollars,” according to co-founder Peter Allerstorfer, who would not disclose the exact amount. In November, London-based Summit Partners invested 20 million euros, or $26.4 million atcurrent exchange, in Zando. The deal included the growth equity investor taking a stake in the company through its German holding company.

Zando, said Allerstorfer, was an attractive investment for J.P. Morgan and Summit because “both investors saw the potential of e-commerce in the South African market.”

Scott Collins, a managing director and head of the Summit Partners London office, said, “We seek to invest in companies that build long-term value, and Zando.co.za has shown dynamic growth in a short period of time.”

Allerstorfer, an Australian, co-founded Zandowith German national Manuel Koser, with initial funding provided by Rocket Internet. Both come from management consulting backgrounds: Allerstorfer with McKinsey, and Koser with Boston Consulting.

“We met through a mutual friend,” they recounted, “after both working for management consulting companies in Johannesburg. We shared a mutual fascination with South Africa and its relatively untapped e-commerce market, which was our catalyst to discuss launching an online fashion retailer.”

Allerstorfer brought to the table his extensive strategic experience across the purchasing functions of the business. Koser heads up the marketing department of the business. The co-founders wanted a name for the company that was quirky, catchy and relevant to the market. “ZA was a good start and we both soon stumbled upon something we liked — it was short, fun and easy to remember — Zando.”

The company started with a team of four people; today it employs over 200 people, which necessitated the move to larger office premises in Salt River, Cape Town, in addition to the acquisition of a 16,000-square-foot warehouse in Ndebeni, Cape Town.

The expanded warehouse is vital to the Zando business model, based on more than 10,000 products and 400 brands in stock, a high standard of service, free delivery within five days, and up to 14 days to exchange a purchase at no cost. Allerstorfer and Kose also stressed the importance of offering a variety of accessible payment methods, which includes all major credit cards as well as cheque and debit cards; electronic funds transfer, instant credit, eBucks, South Africa’s leading multi-partner rewards program, not to mention cash on delivery in selected major cities.

“Our customers are men and women aged 18 to 55. As we offer multiple payment methods, it makes it accessible to many customers operating on various income levels. As online shopping is still in its infancy stage, it is important to make it accessible to the South African market,” said Allerstorfer.

The co-founders decided to begin as an onlineshoe retailer. “Shoes were the most accessible to the South African market,” explained Allerstorfer. “Shoes have an easier fit guide than apparel. What we did was we hired a few footwear models in order to get our fit guide on track before stocking on the website. Initially we offered both local and international footwear brands.”

While Zando is the biggest player in the online footwear and apparel market, there are others. Midmarket retailers Woolworths and Mr. Price have online stores to complement their physical shops. Style36 (style36.co.za) and Shop Label (shop-label.com) are online-only boutiques, both also headquartered in Cape Town.

Shop Label positions itself at the top end of the market, offering only international on-trend labels, with a strong focus ondenim, such as Current/Elliott, J Brand and Victoria Beckham Denim, in addition to Equipment, Vince and Splendid from the US, Sass and Bide from Australia, and Iro from France. Founder Sarah Dickson, a British transplant to Cape Town, acknowledged that Net-a-Porter pretty much provided the template for the online shopping experience that caters to that segment of the market.

Style36 aims to offer “a convenient, hassle-free and luxury shopping experience for the everyday South African looking for products that are on-trend or out of the ordinary.” Their brand mix is a balance between local and international fashion brands — Guess, Desigual and Ugg are sold alongside local labels HipHop, Port and Amanda Laird Cherry, “always aspiring to the highest standards of quality, fit and fashionability.”

Like Zando, Style36 has added beauty to its product mix. Allerstorfer said that the other categories and brands “were brought on board based on South African shopping trends and our customer feedback.” But footwear remains the highest performing category overall, with customers’ main purchasing interests being heels and boots followed by sneakers and t-shirts.

According to Euromonitor International, the market for total apparel — encompassing clothing and footwear — retailing in South Africa in 2012 was valued at roughly $18.5 billion, an increase of 50percent from the base year of 2007. Of that amount, apparel Internet retailing was valued at around $51 million, an increase of almost 90 percent from 2007. While still small, the market is expected to grow by 10 percent in 2013; $56 million is forecast for the year.

The growth of e-commerce in South Africa can be attributed to the significant rate of growth in Internet access levels in the country. “This has helped boost the sales value of Internet retailing for the whole country,” said the Euromonitor report. “The leading Internet service providers have engaged in serious price competition which has forced them to provide such service at affordable rates and in turn retailers havebenefitted through increased sales online.”

In an increasingly competitive market, Zando doesn’t plan to rest on its laurels, even though it is listed as one of the top 75 sites in the country.  Competitors Style36 is at number 449; Woolworths at 192, and Mr. Price at 253.

“Listening to our customers is at the heart of our business,” stressed Allerstorfer. “This is ultimately what will be the driving force behind any decisions made by our purchasing department. Being fashion-forward, having new stock everyday, and offering excellent customer service will assist us in growing our business.”