Well, this is a surprise that not many saw coming.

Late on Monday afternoon, it was announced that online fashion retailers Spree and Superbalist would merge and become one big e-commerce entity to rule them all.

So what’s the deal behind the merger? Spree and Superbalist had so far operated independently instead of a single operation, reports Moneyweb.

This bit is important – Naspers owns 53,5% of Takealot, which owns 100% of Superbalist. Naspers also owns 85% of Media24, which owns 100% of Spree.

There are five simple reasons why they decided to carry out the merger in the first place:

1. Both are sizeable businesses

The stats don’t lie – Spree and Superbalist are making a killing in the online retail game:

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

In the six months to September 2017, revenue in Media24’s growth businesses totalled around 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 …

Superbalist does not disclose any numbers, but it is almost certainly (slightly) smaller than Spree.

By combining the two businesses together, they’d be consolidating power.

2. Smaller market

Per the report, the market is “highly-fragmented”. In fact, it’s much smaller than we thought:

The most recent reliable figure (2016) says online retail accounts for just 1%, or R9 billion, of total retail sales (including groceries) in South Africa. This was expected to grow to 3%, or R27 billion, by 2020. At this point, with a moribund retail sales environment and stagnant economy, this growth rate might be over-optimistic.

Very optimistic, indeed. That leads to the next key factor …

3. Less competition

Say what you will about fashion being the “fastest-growing category in online retail”, but the fact remains that there aren’t many sizeable competitors in the South African e-commerce market.

Except maybe Zando, but otherwise regular retailers are realistically the only other competition, albeit not very strong competition:

The large listed retail groups – TFG Limited, Truworths, Mr Price Group – have all made strong moves into e-commerce in recent years. But, e-commerce currently likely represents well below 1% of total retail sales for these operators.

If that’s the case with their sales, then clearly these retailers don’t hold much of a candle to Spree and Superbalist.

4. Running e-commerce businesses in South Africa has been a struggle for Naspers

Back in the day, Naspers was the market leader in South Africa together with Kalahari.com. Then Takealot came along and spoiled the party:

Takealot trampled all over Kalahari, with the end result being the “merger” of Kalahari into Takealot. [Naspers] ended up being a minority shareholder in the combined business, and over time increased its stake to the current 53,5%.

Now with the merge happening, Naspers can breathe a little more easily.

5. Media24’s media properties are still useful

Like I said, they own 100% of Spree, practically building it from the ground up:

[Spree] leveraged its hold on the largest digital audience in the country (with its multiple online properties), as well as its magazines and, more recently, its lifestyle TV channel Via to drive awareness and transactions.

All in all, that’s fan-flipping-tastic.

Thing is, although Superbalist didn’t have this reach before, it seems to have a more loyal customer base, and as a brand it just seems a little cooler than Spree.

That, and maybe they don’t take forever with delivering the goods to customers.

Clearly, by merging these businesses together, their best and most useful qualities will rub off each other, making for a profit-making powerhouse.

As y’all can see, Naspers might be onto something here.

The merger is set to be sealed on July 1. The merged entity will undergo a three-month period of integration planning and implementation, and during this period, each business will continue to operate independently before final integration.

[source:moneyweb]