Episode Transcript
The Finance Ghost: Welcome to episode 240 of Magic Markets. Moe and I are excited to do the show as always. It's going to be quite a fun follow up, I think, to what we did last week when we talked about analysing retailers.
We've just finished recording our premium show for Dick's Sporting Goods, which is, as the name suggests, a sporting specialist retailer. A most unfortunate name, but a great business. And a lot of their story is around omnichannel, which is something that is just becoming bigger and more important all of the time.
And as a final little setting the scene comment, I got to speak to the Shoprite CEO Pieter Engelbrecht earlier today and asked him about Shoprite's results and all of the learnings they've had from omnichannel. Some really interesting stuff coming through there. So Moe, we're going to talk about omnichannel this week and eCommerce and all those fun things.
Mohammed Nalla: Indeed, Ghost, very excited to jump into this topic with you this week on Magic Markets and I guess it's because we can bring some very diverse perspectives here. You sit down in South Africa, you can tell us a lot about what's happening in eCommerce down there. I sit up here in North America - somewhat different, we're maybe slightly ahead of the curve based on where South Africa is, but from what I've certainly heard, I've got lots of family and friends down there, they've been very happy with the Checkers - I think it's the Sixty60 app or something like that that's really changed the game with regards to some of the eCommerce operations down there? Because my frame of reference when I left South Africa, give or take six, seven years ago was Takealot. That was kind of the only player out there and I think a lot of the larger retailers down in South Africa may be starting to get on the bandwagon. Let's see how that goes.
What I'm going to look at covering, though, Ghost is maybe setting the scene from a macro perspective first and foremost because this trend, megatrend, if you want to call it that, is one that we've actually seen globally, but it's not new. I remember when I was still working at a bank down in South Africa, it was probably around 2015/2016. I remember looking at some of the macroeconomic data that was coming out back then. And what stood out for me back then was that the UK was actually ahead of the rest of the world when it came to eCommerce, certainly when you're looking at eCommerce sales as a percentage of retail sales. And again, the numbers stuck in my head because back then it was around 13%/14%, which was seen to be high because the rest of the world was still in the single digits.
And if we fast forward to where we are today, just maybe a quick snapshot of how big eCommerce retail is as a percentage of total retail. And I'm going to run through a couple of stats here because if we look at the US, that rose from around 11% in 2019 - we had a pandemic spike because during the pandemic almost everything went towards eCommerce - and that pushed us up in the US to around 16.3% in the second quarter of 2020. Now what's interesting is, as you would expect post the pandemic, that started to moderate, kind of trail back down again, but then it built up again and we're currently today back at that exact same number, 16.3% as it stands right now in 2025. That's the new higher normal, I would call it, after we saw that step change in Covid. And this shows you that increasingly consumers - Millennials, Gen Z, whatever you want to call it - are pivoting a lot harder towards eCommerce. And this is certainly as eCommerce players become a lot more efficient in terms of fulfilment because now you've got things like same day delivery, the ease of buying and then also returning products that you don't want. Certainly up here in North America, it’s just ubiquitous. It's so easy that I find even my own behaviour has now been skewed. I've been buying a lot more online than I've been buying in person. And again, this has ramifications further down the value chain for mall operators, real estate stocks and so forth. We'll get into the value chain later on.
Let me just quickly go back to what those statistics look like. The United Kingdom, I mentioned they were ahead. So in 2019 they were up at 19%, ahead of the US, it peaked around 37%. Now again, compare that to the US where the peak in the pandemic was 16.3%. In the UK, 37%! It then actually settled back down again and we currently find ourselves around 27%. So again, the UK ahead of the curve there. In Canada, we're somewhat behind the curve. The latest reading, around 6% of retail sales. I'm contributing to that, but certainly not where the US is, not where the UK is.
And then lastly, Ghost, an interesting dynamic. If you look at Asian economies and in particular if you look at China, they are one of the few countries that have a separate line item when they report the data out there. It's online retail of physical goods. That's a key point. It's always physical goods. We'll talk about services later on. Currently sitting at around 25% of total retail. So that is a very big number, certainly in line with the UK. But Asian economies, China very high up there. And then we've also got the likes of South Korea, probably around the 26% mark, there and thereabouts. So, showing you that Asia has a larger eCommerce concentration than Western economies. And how this does all kind of devolve into a global number? If you wrap that up, it's roughly around 20%. And so this sets the tone in terms of benchmarking whether South Africa or whatever country you're looking at is ahead or behind that global megatrend.
The Finance Ghost: Yeah. So the easy way to do it, if you're in South Africa and you want to just get these sort of stats from SENS, check out The Foschini Group. Really interesting because they have stuff in the UK, they have businesses in Australia and they have businesses in South Africa and they actually give you all of the stats around online penetration rates. And South Africa is still way behind some of those developed markets, which I think is exactly why you are now seeing the South African retailers pushing so hard into an omnichannel model.
And what's really interesting, one of the things that came out of my chat with the Shoprite CEO earlier today, and if I think about some of the struggles that the likes of Spar has had in actually getting this right, it's very difficult to build a fantastic omnichannel business if you are a franchise model as opposed to a corporate owned model. And the reason for that is actually quite simple. Just think about all of the systems involved. If it's franchise model, then your franchisees, even if they are all on the same operating system, which is kind of unlikely on a good day, there's not that much data sharing going on. They're just buying stuff from the head office. Yes, the head office can track stuff like turnover so that they can get their royalties, etc. but there's no way on earth that the head office knows what is in stock at a franchisee at any point in time - that just, that data does not exist. Whereas in a corporate owned format where there's actually been proper investment in systems - and that's sometimes why you'll see these retailers go through really painful systems upgrades that cause significant disruptions, but they've got to do it - because they need to be able to say, okay, we can see at any point in time what is in stock in a particular store. So that when an order comes in and someone is saying okay, I want to be able to order this thing on demand, it needs to be routed correctly to say okay, we can fulfil it from “that store” - let's get the pickers and packers on it. Let's get the driver going there to get this stuff. Just imagine the amount of technology that goes into building proper omnichannel retail.
So if you don't have a data strategy as a retailer, if you do not have a proper stock management strategy, then it means you do not have an omnichannel strategy, actually, you just have a little bit of a fulfilment engine on top. But there's no ways long term that that is going to successfully compete with some of the really strong, fully integrated omnichannel stuff.
So just operationally that's something to look at Moe, is whenever you see a retailer, just look at are they franchise, are they corporate owned? Because it's going to make a difference to how they address omnichannel.
Mohammed Nalla: It shows you, within that value chain of just looking at retailers, the corporate versus the franchise model, I think that's important. But you've touched on another very important point, is that eCommerce hinges on so much. It hinges more specifically on logistics. And again, sitting in North America, at least we still have a functional postal service. So you have the option of using the state-owned postal service. That's an option. You've got the likes of FedEx and UPS, big logistics companies that we have covered here on Magic Markets Premium. If you're not a subscriber go and check that out. It's only R99/month. We do a deep dive report as well as podcast every single week into global stocks. Go and check that out. We think it's great value.
But with regards to that, it leads to the point I actually want to raise as my second talking point and that is if you're looking at eCommerce as a trend, then you also have to look up and down the entire value chain because you could just look at the retailer - yes, that's fantastic, up here we've seen massive, massive gains being made by the likes of Walmart. Costco, I would say probably a little weak on the eCommerce side. We've covered players like TJX, so again a mixed bag of whether players are strong or not in that space. But what has been a big disruptor up here in North America, I think it's coming into South Africa as well, has been Prime. You've got Prime one day delivery here, you've got same day in the US and so this ties into that fulfilment point because logic would dictate that some of those logistics players should have done really well. But if you go and have a look at FedEx, you go and have a look at UPS, their share prices have actually been pretty hard hit. And the reason for that partially is because a large player like Amazon has been building out their own logistics infrastructure.
The point I'm trying to land on here, Ghost, is that it goes beyond the data. Yes, having unified data across your operations certainly plays into the eCommerce trend. But you've then got to layer on a very strong logistics strategy in order to make sure that your fulfilment is seamless, not just in terms of delivering goods to your consumers, but then also in terms of facilitating returns. Because I think one of the biggest hurdles to eCommerce is this hesitancy that comes through from consumers saying, what if I don't like the product? How easy is it for me to actually return this from the place I bought it at? Lots of moving parts there.
Ghost, I want to ask you a question on that. In South Africa, do you see logistics as a big hindrance because you don't have a functional postal service? I mean they're getting bailed out by the government again. What does that actually look like? And have the players that have really made some headway in this space been building out an in-house logistics arm to or has that been falling elsewhere in the value chain?
The Finance Ghost: No. So what you've seen is you've had companies that have popped up all over the place to basically plug the gap. There's been some pretty big courier businesses that have popped up and are then trying to address the demand among SMEs with eCommerce strategies, stuff like Courier Guy for example. But then you've got like they've done in the Shoprite group - it's really a Checkers thing, although they are expanding it now to other banners within the group. We could talk about that. But they've gone and built out Sixty60 as an in-house - well actually that's not strictly true, it was an external logistics solution that they took an equity stake in and then they've actually increased that equity stake recently. I think they've taken it to 100% now very recently. Similar at Pick ‘n Pay actually, what became their on-demand solution also started as an externally built startup, to just get some of the basic tech in place.
But yeah, I think if you're going to do this at scale, you've got to build it out as a proper in-house thing. I mean there's zero reliance on any kind of external - you just can't do that if it's an on-demand type platform. If you're talking about stuff like Takealot as a scale play, again they have their own teams of drivers out there.
So this is the really interesting thing with omnichannel - and Takealot is not omnichannel, Takealot is obviously online only - but even in omnichannel, scale is really, really, really important and it is a situation where winner-takes-most, I think over the long term. We're not there yet in South Africa because there's still a lot of store-based purchases. We just don't have big online sales penetration yet. But it's growing all the time. So over the long term, I think we could see a little bit of winner-takes-most in the space where scale is really important, especially when it's on stuff that is so time sensitive. It's one thing to be able to say - and when we look at Amazon we get stuff like same day delivery and if you need to buy something urgently on Takealot you can pay for priority delivery. I laugh because a month ago I paid for a cell phone cover for my new cell phone on priority delivery because I thought that day I would set up my new phone. Moe I can hand-on-heart tell you I'm still using my old phone because I have not found the time in the past month with the house move and everything else to actually get that done. I really donated some money to Takealot for no reason there on priority delivery. But of course where it gets taken a step further, on-demand delivery is literally as the name suggests, it's like I don't have this thing, I need this thing, I want it in the next hour. The logistics to deliver that, just incredible, and that's where you need to have such an in-house solution that is fully integrated, so data driven. It's really impressive stuff.
Mohammed Nalla: Yeah, I'm going to give you some data points here on if you want priority delivery, next day is almost the default right now. If you look at Amazon, just the kind of mark they've made on the industry, next day delivery has become somewhat of the norm and it's why I would probably buy on Amazon versus another retailer that probably gets me the product in a couple of days’ time. It's not because I need it today, it's just again the comfort of I hit click, it arrives at my door, sometime within the next 24 hours. I'm comfortable with that. I've parted with my money and now I have my goods.
But you've raised a very important point and that is whether you do this in-house or you outsource it. And I'm going to tie into what I've seen at Walmart, for example, up here in Canada specifically is that you can actually get next day delivery on Walmart for free or maybe within the next 24 to 48 hours and if you actually pay them a subscription-based fee on the app, they will allow you free same day delivery. And the reason they're able to do that is that Walmart also changed how they were fulfilling in the eCommerce space to start fulfilling out of their stores. Because if you think about it, they've got this massive footprint and that is a massive logistics asset that they have on the book that gives them a moat against other players that are out there.
And so I think this is where you start to see winner-takes-most or winner-takes-all economics really start to hit home. Because if I want my goods within the next hour, Walmart's going to fulfil that from the nearest store. And again that just contributes to this overall flywheel that you're getting on eCommerce.
Now where I want to go with this again another question to you Ghost, is that this has very different bearings in terms of other parts of the value chain because what you've seen In North America is that retail property, for example, is starting to struggle a little bit in certain sectors because some of the larger players, Amazon specifically, are taking up a lot of warehouse space that falls into industrial. Now that's somewhat countered by the point I just made where if you look at a player like Walmart, they take up retail space and then they're using that for fulfilment.
What's happening down in South Africa? I would assume that the larger players are fulfilling out of their stores, so no real bearing in terms of the retail property market yet. But have you seen the rise of warehousing as an asset class? Have you seen the rise of industrial property as another means of tapping this eCommerce megatrend?
The Finance Ghost: It's a great question. I'm glad you've asked because it actually came up in my discussion with Pieter earlier and he said to me on the phone that when he and I spoke, I think a couple of years ago, after results, maybe a year ago, he actually remembered saying to me that at the time he thought dark stores would be a thing, like fulfilment from dark stores, warehousing, etc. Because obviously the retail stores are not really designed for quick shopping - so he didn't say this, this is just my observation - and I know this about retail stores, they make you walk to the bread at one end and the milk at the other so that you walk past as many aisles as possible, which is great when you're a customer and they're trying to get your average basket size up. And it's a disaster when you're a picker and packer for a quick order and they're desperately trying to get you out the door as quickly as possible.
So that's the dark stores argument. But the reality is that the way it's gone, and this is what he said to me on the phone, is that now when they open a new store, they're thinking about it omnichannel day-one. They're basically looking at it and saying, okay, not just how does this address the people close by, but how does this fit into our existing fulfilment network? What does it need to look like? What does it need to do? Because it just makes more economic sense to treat the stores as the fulfilment centres as opposed to saying well, let's try and get warehouses built - it's just too hard, from a systems perspective and a return on capital perspective and everything else - it works very, very well for them to do it from the stores.
So to answer your question, yes, there - I actually read something from Equites, yeah, it was Equites Property Fund. They're bringing money back to South Africa. They're selling down the UK portfolio because they want to invest in more logistics and warehouses and that kind of thing. Because the argument there is that there is more demand than supply in that space and so obviously they want to try and address that demand. But I've got to say, you're not seeing a situation where everyone is now warehouse mad and retail is struggling. It's just not the case. The retailers are using their stores to fulfil.
Fun additional fact which I confirmed on the phone today, it's something - I was right about it, but I wasn't 100% sure - is that the landlords of shopping centres, when those orders are fulfilled from the stores in the centres, they do fall into the turnover clauses. The landlord still gets a cut of that, which is extremely important for shopping centre owners. Because if that wasn't the case, you can imagine how the economics of these centres would take a knock - and obviously the retailers don't want that to be the case, so that could be a pretty interesting battleground in years to come between landlords and the tenants.
Mohammed Nalla: Yeah, I love that insight. I think it came out on our show last week and again, if you've missed it, go and check that out. There's an extensive library…
The Finance Ghost: …yeah, I was speculating last week, I was 99% sure, I'm now 100% sure, confirmed that is the case.
Mohammed Nalla: And again, that has a very important bearing in terms of just the various segments in the market in the value chain.
Ghost, I want to touch on two very important points before we actually wrap up the show. And you mentioned upfront the importance of data of the larger players. So I want to bring that in because that's also introducing another revenue opportunity for some of the larger players. We've seen it at retailers like Walmart, we've seen it at Costco, where they effectively now have very rich data on their customers they're fulfilling through omnichannel. But this gives them lots of line of sight in terms of customer’s buying patterns, what they like. It allows them to then also offer that as an advertising platform to suppliers. So pay attention to that. It's more point for noting because I don't know how much of that's happening down in South Africa. I know it's happening up here in global markets in the US.
And then the last point is in terms of where you play in the value chain - recent development, in fact, around a day or two before we're recording this, in the US they're looking at scrapping the de minimis rule which was there in place effectively meaning no tariffs, no taxes on imports that come through fulfilled by eCommerce below a certain value. And if they actually scrap that, that's going to have several impacts. First is probably going to impact the logistics players, as we've mentioned, UPS, FedEx, lower parcel volumes potentially coming through from the overall tariff theme that is effectively dominating the markets right now. But the other impact that comes through is that you're going to start to see this geographical dispersion that was actually a big driving force behind eCommerce, the rise of Temu and Shein. If you think about the headway they've made in developed markets like the US, that's going to maybe start to take a little bit of a backseat because those goods are now going to be subject to tariffs and taxes. Again, maybe tangential in terms of relevance to South African audiences specifically, but if you are an investor in global stocks, you just pay attention to some of the regulatory risks that are now potentially a headwind to the overall eCommerce trend that has been very strong.
The Finance Ghost: And I think maybe just as a final comment on the appeal of omnichannel and why it's so important and we've seen it again in the Shoprite results, we're seeing it - I mean, we've just done Dick's Sporting Goods as I said, you can see it coming through there. Just the additional income opportunities that omnichannel brings. And I think this is what was missed in the early days of this explosion was people were saying, well, I have to basically subsidise part of the fulfilment costs and stuff wasn't at scale yet. And so retailers were making less money when they were selling something online versus when they were selling in store. Now we're getting to the point - I mean, I don't know this for sure, but we can't be far off parity, if not past it actually, because number one, we've got the scale benefits coming through. And number two, now it's the additional sources of income, it's the advertising revenue, it's the ability to sell data to suppliers. It's all of the other stuff that comes with having all of this wonderful data. Because of course now membership cards and rewards programs, if someone is shopping online, they load up their rewards program just once to their profile and they're always going to effectively be using it because now you have the data on that person, you're not relying on them being willing to swipe in the store and carry it in their wallet, etc. etc. etc. - so it's just a very efficient and interesting world.
And of course, a lot of this data and a lot of these strategies is what's driving cloud, it's what's driving AI, it's what's driving all these data centres in the background. So just a really interesting thing to keep track of, I guess, and that's why we thought we'd maybe talk a bit about it this week is whenever you get an opportunity to read about digital and omnichannel, do it because it's a big theme right now and it's not going away.
Mohammed Nalla: Yeah, Ghost. I mean, that's so important. And you've just touched on even, other areas of the value chain, data centres, what's happening in that space. We haven't even touched on the services side of eCommerce - think of your Netflix subscription. And that's really, again, by design. It's because a lot of the data we've been speaking about, a lot of the themes come through specifically in the product space. Those statistics that I mentioned upfront in terms of percentage of retail sales that are eCommerce, it's all product-specific. It's an actual physical product that someone's buying online. And so if you were to wrap up the overall eCommerce theme, if you want to call it that, to include services, then the size of the digital economy is really gargantuan. And we're only starting to realize that in certain economies right now.
I'm certainly quite interested because if South Africa's behind the curve versus where some of the global markets have gone, that suggests to me that there's substantial growth that can still be realised in specific regions and markets. So again, put that in the back of your mind when you're looking at geographical exposures to certain themes.
Unfortunately, that's where we've got to leave the show this week. Let us know what you thought. Hit us up on social media. It's @MagicMarketsPod, @Finance Ghost and at @MohammedNalla, all on X or go find us on LinkedIn. Pop us a note on there. Until next week, same time, same place. Thanks and Cheers.
The Finance Ghost: Ciao.
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