The world is changing fast and to keep up you need local knowledge with global context.
Online retail has had a bit of a slow start in South Africa, largely because it took so long for the country’s old telecoms monopoly to roll out decent internet infrastructure, and because service remains expensive and slow by global standards. Yet slowly, the tide is turning, and online retail is growing rapidly in South Africa. At the forefront of this growth is takealot.com, which has hit the retail scene in South Africa with a splash and rapidly built up a substantial business. Now, Takealot is ready for the next step, and set to raise R1bn in fresh funding to expand its SA and Africa businesses. It’s an exciting venture, and one that holds out hope for South Africa’s ability to participate in the digital age. –FD
GUGULETHU MFUPHI: Online retailer takealot.com has raised more than USD100m for its expansion plans into South Africa and sub-Saharan Africa. Kim Reid, Chief Executive of takealot.com joins us now from our Cape Town studios for more. Kim, thank you for joining us today. Perhaps you could elaborate a little bit further on this – USD100m into an emerging company. It’s a fairly big deal. How did it come about?
KIM REID: Thanks very much for having me. We’ve been growing the business for the past three-and-a-half years. We’re an online retailer and we think that Africa and South Africa particularly, is a great market. Our shareholders have put their money where their mouths are, they’ve backed us to grow even faster than we’re growing right now, and to expand into the rest of Africa.
ALEC HOGG: Kim, $100m: that’s R1bn. That’s a serious investment. How did you get to know the guys from Tiger…the old Julian Robertson? I’m sure there is a relationship between them, still.
KIM REID: Yes, there is, actually. In fact, I’ve met Julian before in New York. Tiger and I have had a relationship since my days at Naspers. I was with Naspers for many years and when I decided to go and do something on my own, Tiger approached me. They said ‘let’s do something in South Africa’ and in October 2010, we reached a deal, where we bought a small online retailer at that stage – Take 2. Takealot today, is really the result of growing that business over the last three-and-a-half years with Tiger’s backing.
ALEC HOGG: Why did you go that route? Why acquire something that, as you say, was small and currently existing rather than just starting from scratch?
KIM REID: I think it’s probably just my nature. I prefer taking something and growing it into something bigger. It had a little bit of momentum at that stage. It had a customer base. It had technology behind it, and we could actually take the current base and change things into what we wanted to. Going Greenfields has a plethora of problems; not just starting the customer base and getting that flywheel started. The Greenfield approach is a difficult approach. When you look back at things, maybe Greenfields would have been a good thing to do. We face/faced certain problems with what we have today, but things are going well and it seems to have been the right choice.
GUGULETHU MFUPHI: Kim, looking at your team, you have no shortage of talent. Some of them, like you, are from Naspers, as well as Amazon and Google.
KIM REID: Yes. We’ll actually put a press release out next week, announcing Willem van Biljon who’s coming on board, which gives us great technical credence in the market. Willem’s a fantastic guy…a highly intelligent guy. He started some great businesses in his time and he’s decided to join us, which I think is a nod of approval in our direction. The rest of the guys on the team are all fantastic people in their own right, have had experience from the Amazon side as well, my CFO has been with me for 13 to 14 years and probably thinks he’s mad, but he has still stayed with me and the rest of the team are really strong guys. We have a fantastic team and a fantastic opportunity.
ALEC HOGG: Kim, just a little tip: if you’re going to put out a press release, make sure it’s new news because Willem’s appointment is on your website already. I actually thought he was part of your team. Just to go back to that $100m: is that all going to be in working capital? Is that an injection to maybe allow you to grow exponentially?
KIM REID: We’re currently growing at a very rapid rate, and one thing is for sure: ecommerce takes cash to build a substantial business. We’re going to be putting that into working capital, technology, warehousing and logistics, and increasing our human capital. We’re also going to be looking at expansion into sub-Saharan Africa. Our sub-Saharan Africa plans are currently confidential. We do have ambitions, but we’re first going to consolidate in South Africa.
ALEC HOGG: You’re competing head-on with your old friends no doubt, at Kalahari.com.
KIM REID: Yes, we are and we believe that within the near future, we’ll be larger than they are.
GUGULETHU MFUPHI: Kim, looking at your other expansions – India, China, and Brazil – surely, there must be lessons that South Africa can learn from those kinds of economies, which has picked up to ecommerce quite strongly.
KIM REID: We’re very fortunate in having Tiger as a shareholder because we get to learn lessons from the likes of Flipkart in India, Netshoes in Brazil, and jd.com for that matter, in China. The reason we started this business is that there is tremendous opportunity in ecommerce. Our thesis is that the only way we won’t succeed is if we don’t execute correctly. The market’s there. The world is growing at a prodigious rate in the ecommerce space, and if South Africa and Africa is the only country and continent that doesn’t do that…well, I’m prepared to take that bet.
ALEC HOGG: Are you basing yourselves on amazon.com? I mean that for a couple of reasons. When you describe yourselves…largest, simplest, but more importantly, most customer-centric, that’s very much a Bizos approach. The second thing is related to that. He hasn’t turned a profit, I don’t think, yet. Are you looking at the same thing: build, grow, and perhaps lose money now, but reap many years into the future?
KIM REID: Ecommerce is a scale business and you need to get to scale. In order to get to scale, you need to spend cash and you need to lose money in the short term to make money in the long term. We are following a similar approach. Are we similar to Amazon? I suppose we do learn lessons from Amazon – there’s no doubt about that. Ecommerce is something that you have to customer-centric about to make it work. We obsess about the customer. We are, we believe, truly customer-centric. We don’t get it right every single time, but that is our ambition. I suppose you could say we do take a couple of pages out of Amazon’s playbook.
ALEC HOGG: Very quickly: what kind of annual growth rates are you achieving and projecting?
KIM REID: If you look at retail in this country, retail in South Africa is sitting at R550bn. Ecommerce right now, is probably around one-point-two percent of total retail. If you look at the likes of developed markets such as the U.K. and the U.S., the U.K. is predicted to be 23 percent penetrated ecommerce of retail in 2016, and the States is predicted to be roundabout 12 to 14 percent currently, and growing very strongly. If you look at those numbers, we think there’s just a tremendous market out there. Our current growth rates are in excess of 100 percent and there’s no reason why we can’t keep those growth rates growing for the foreseeable future.
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