Online retailer Yuppiechef looks to bricks and mortar
Yuppiechef has four stores and is looking for more sites, with founder Andrew Smith espousing the value of bricks-and-mortar stores alongside e-commerce.
It's a telling stance from a company that won the award for SA's top e-commerce company for six consecutive years and has been a frontrunner in online retail in the country.
"The No1 reason we opened stores is we want to keep growing," said Smith, who was addressing a retail and consumer insight conference at the Gordon Institute of Business Science in Johannesburg this week. "Growth online is slow and hard."
It took two years for Yuppiechef to generate its first R1m in turnover as an online company, whereas it took only a few days to reach that at its V&A Waterfront store in Cape Town.
Smith said shoppers in SA preferred to visit physical stores, and the country had one of the highest malls per capita in the world. The company has four stores in Cape Town and is looking at sites in Johannesburg.
Though malls are being abandoned at a rapid pace in the US and there have been many retail bankruptcies, Smith said the value proposition of doing transactions online in SA was not as transformative as in other arenas, such as internet banking.
Another reason for going into stores rather than just online was that there were no geographic monopolies and apart from offering the lowest price, the only way to sell online was if no-one else sold what you were selling online.
He questioned the views of some of the many online retailers that did not make a profit now but, with volumes and economies of scale, would attract huge investment.
"If Amazon hasn't reached the point where they've made a profit from their retail division, then what is the cost of pursuing this?" said Smith.
Another challenge with being online and in stores was in negotiating leases. Landlords wanted to charge rental based on turnover, but the lines were blurred. Shoppers might buy online but collect from the store.
"We have to rethink what we mean by in-store turnover," said Smith.
He also questioned the idea that the cost of supplying online purchases was less than in-store.
Smith said in effect it could be more costly to sell goods online because it required so much more logistical input.
The issue of online versus physical retail raises the question of what type of retailer stands a better chance of winning the customer: the existing retailer with good distribution, which then goes online, or a fresh, nimble online retailer that then gets into distribution.
Stuart Bird, the former CEO of Mr Price, said he had been excited about e-commerce in 2012, "but I quickly realised you could lose a pile of money doing this, which we did"."The cost of fulfilment, cost of marketing, cost of returns, are all expensive," said Bird."The consumer loved it initially because we offered free delivery. We soon changed that."We got the team together and said we aren't in this game to lose money. And you need to show us and prove quickly how we're going to turn this around to make money, which we did."We soon got into acceptable margins, which aren't as profitable as the stores but it's acceptable . it's a very, very important channel to engage customers nowadays. You can't not have it in the kind of business Mr Price is in."Bird said online trade was growing fast, but was still small. The apparel business is less than 1.5% of Mr Price's turnover."The home business is more, about 3%, 3.5%. We still see it as important in how we engage with our customer. We've seen a lot of our customers use the app and the website but [they] still prefer to buy in-store."Dave Smith, equity research analyst at Investec, said retailers that were smart and prepared for the future would own the customer...