Online mergers: why?

WHAT’S REVEALED ABOUT WEB RETAILERS IN SA

The late Monday afternoon announcement that online fashion retailers Spree and Superbalist would merge ought not to have caught anyone unawares.

Both e-commerce players are already majority owned by Naspers: it owns 53.5% of Takealot (which owns 100% of Superbalist) and it owns 85% of Media24 (which owns 100% of Spree).

This reshuffling of its portfolio is about one thing: scale. Until now each of these businesses has operated completely independently.

This means there are two buying teams, two technical teams, two marketing teams, two operations teams, two warehousing teams, two logistics units and two customer-facing support teams. Yet, they target a similar customer.

In e-commerce, with generally razor-thin margins, scale wins.

A combined entity, regardless of the customer-facing brand(s) it retains, will benefit greatly from being run as a single operation.

In the year to end-March 2017, Media24 said Spree visitors were up 70%, the number of orders up 75% and revenue up 84% yearover-year.

These are impressive numbers, but it must be remembered that Spree was still a new business.

In the 2017 financial year, Media24’s growth businesses (digital media and e-commerce) reported revenue of about R700 million (up 23%), with a trading loss of R250 million. This is not all Spree, however.

In the six months to September 2017, revenue in Media24’s growth businesses totalled about R400 million, an increase of 29% on the prior year.

The number of orders on Spree was up 48%, revenue increased by the same number, and visits were 35% higher in those six months.

While growth is still strong, one can see the overall trend has not exactly been accelerating over the past 18 to 24 months.

Naspers was once the market leader in South Africa, with Kalahari.com.

Takealot trampled all over Kalahari, with the end result being the “merger” of Kalahari into Takealot.

It ended up being a minority shareholder in the combined business and over time increased its stake to the current 53.5%.

Takelot’s original management team still runs the show. This transaction is very similar. Media24 owns the majority stake, but Takealot will run the combined entity.

It must be remembered that Media24 built Spree from effectively nothing. It leveraged its hold on the largest digital audience in the country to drive awareness and transactions.

Superbalist did it the hard way, as it didn’t have this reach.

It developed a content offering to drive awareness and build an audience.

Even after Takealot acquired it in 2014, it continues to run fairly independently.

This reshuffling of its portfolio is about one thing: scale.