A recent industry study estimated South Africa’s online-retail sector at R71 billion in 2023, a year-on-year increase of 29%. That level of growth encourages a lot of competition. South African brands like Shoprite Checkers, Pick n Pay and Woolworths have all grown their online services significantly.

Over the past few years, several international online brands have also entered the local market. How does the presence of these international businesses in SA change our shopping landscape – and how are they regulated locally by the South African Revenue Service (SARS)?

Local manufacturers versus Chinese economies of scale

Chinese online retailers Shein and Temu are among the more recent entrants to the South African online market, grabbing market share and increasing pricing pressure on local retailers. Shein became a dominant brand after its 2020 launch in SA, where it was the most downloaded shopping app in 2023.

Temu was launched in 2022 by PDD Holdings, which owns Chinese e-commerce platform Pinduoduo. It entered the South African market in January 2024, and within 3 months had become the most downloaded app in local app stores, on the back of massive advertising on Google and Facebook. 

Both companies exploit economies of scale to ship goods by air freight to delivery partners around the world while keeping unit costs low. Since they have no overheads to pay on local brick-and-mortar stores or logistics infrastructure, they use their resources to flood the market with ads, especially on social media, where their paid promotions are unavoidable. Local competitors simply don’t have the advertising budgets to compete for attention.

Other low-cost Chinese online suppliers like Wish have declined in popularity, despite initially making a big impact. Wish attracted a lot of customers at first by offering loss-leader bargains at below cost – a strategy also employed by Shein and Temu – but as prices normalised and poor product quality became apparent over time, it lost market share and is now just one of many competitors in South African e-commerce.

If Shein and Temu are to avoid a similar fate, they might need to reconsider their supply chains to include more South African online vendors. For example, when US giant Amazon launched its South African e-commerce site, Amazon.co.za, in May 2024, the company announced that it aims to source more than 60% of the items sold on the local site from independent local suppliers. Most of these will be small and medium businesses, in line with its global operations.

If you’re a small business owner supplying Amazon for local delivery, the scale of its operations offers several benefits. It sells local and international brands across 20 different product categories, for both same-day and next-day delivery, with more than 3,000 pickup points and an easy-return system. It currently offers free delivery on your first order and free delivery for subsequent orders above R500, with status updates sent through your preferred digital channels.

Even though Amazon, as the original online retail giant, has faced its own controversies regarding labour conditions and unfair competition, all these advantages can at least make a partnership with Amazon.co.za an effective way to grow your small business. Unlike Amazon, Temu and Shein don’t include a supplier base drawn from local small and medium businesses in their planned operations. They might need to reconsider, if they want to counter the claims that they represent a danger to local textile producers and clothing retailers. 

Labour practices: Transparency and accountability

The sheer scale of the supply chains that giants like Shein and Temu rely on also makes it more difficult to properly vet every single supplier, to ensure that all the goods the e-commerce sites are selling are produced according to ethical labour practices. Both companies consistently deny accusations that they deal with suppliers who use forced labour or child labour. However, a US government investigation of Temu found that there was an ‘extremely high risk of forced labour contamination within Temu’s supply chains.’

Shein and Temu had also been exploiting a South African tax loophole by avoiding VAT and paying lower import duties. The so-called ‘de minimis’ rule allowed parcels containing clothing with a value of less than R500 through customs with a payment of only 20% import duty and no VAT. Local retailers have always had to pay 45% customs duty as well as 15% VAT on all imported clothes. This clearly wasn’t a level playing field for the local industry, even though it allowed international e-commerce stores to offer radically reduced prices.

Industry concerns and stricter tax regulation

South African retailers – who pay full taxes and duties on the products that they import, export, or sell locally – can’t compete under these conditions. Unions and retailers alike are concerned about job creation and even the impact on the environment of air-freighting cheap, mass-produced clothing around the world. The local industry demanded an investigation into the low-cost retailers.

In 2024 the National Clothing Retail Federation of South Africa and the Southern African Clothing and Textile Workers’ Union filed formal complaints with government, and in March 2024, the Department of Trade, Industry and Competition announced that it was investigating Shein for potentially avoiding import taxes.

SARS has since decided that Shein and Temu cannot rely on the de minimis rule. Since 1 July 2024, shoppers have been required to pay the standard import tax on all orders from Shein and Temu, even if they cost less than R500. For example, an item that used to cost you R120 on Shein or Temu will now cost you R166.  

Whether enforcing stricter tax compliance will be enough to help local clothing retailers compete with international giants remains to be seen. However, it will at least offer South African online shoppers access to more fairly priced options.

At Nedbank, we have our own online shopping platform, Avo SuperShop, offering a wide range of shopping categories. You can also link your online store to Avo and expand your e-commerce market reach instantly.

For small business opportunities that arise as online shopping grows in South Africa, see our guide to setting up your own online store. You can consult our small-business services for support and advice on adapting your business to online orders and deliveries.