TFG has a portfolio of ~24 retail brands in South Africa, six of which have been acquired over the past three years through the purchase of Jet and Tapestry. We want to understand how the existing 18 brands have performed in recent years, so that we can better understand the ‘organic’ growth track record of the TFG South Africa division.

This research was inspired by the findings in Mirror, mirror, which analysed MRP’s lofty growth aspirations by unpacking consumer apparel spending by brand within income brackets. Two things were clear: the degree of fragmentation in the apparel market among higher-income earners (the largest market segment by value); and the importance of strong local brands to compete against the greater participation of foreign or global brands in this segment.

By better understanding TFG’s organic growth performance by brand, we believe analysts are better equipped to evaluate the retailers’ strategies and growth prospects.

To perform this analysis, we evaluated the spending of 22seven users by brand within four income brackets over the past five years. The charts below show the contribution of each brand to total 22seven user spending at all TFG’s existing brands over the period. The brands are organised in groupings that have similar scale.

A word on credit: Credit sales are important for TFG and account for c30% of annual sales. Fortunately, since Covid, most of TFG’s credit payments have shifted online, making it easier for us to distinguish credit payments from other purchases. That said, in-store account payments, EFTs and other credit idiosyncrasies do introduce a higher forecast error into such an analysis…

Still, based on the large samples of transactions for most brands, we believe the trends shown below are significant.

What you need to know

• @home has lost spending share within the TFG stable, without a corresponding adjustment to store numbers.
• TFG’s growth brands may need to grow ~20% pa for TFG Africa to achieve 5% store growth. Store numbers for many large brands appear to be saturated.
• Over the past five years, Archive, Sneaker Factory, The FIX, Exact, sportscene and Totalsports have gained share of total spending at TFG.
• There are signs of better store density for Foschini over the period.

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Observations:

• ‍‍Due South and Donna have closed their doors over the past two years. Donna has been absorbed into Foschini stores and Due South has shut down completely. In 2018, these brands together accounted for ~4.5% of user spending at TFG.
• Footwear brands Archive and Sneaker Factory have grown consistently in recent years, each increasing their contribution to total TFG spend by ~1%.
• Chart 2 highlights brands that are supported by different income segments. Note how higher-earning 22seven users spend more at Fabiani and G-Star Raw than lower-earning users – the green line is at the top and the red line is at the bottom in the first two panels. It’s the opposite for Exact and The FIX, where lower-earning users make up much more of total spend than higher-earning users.
• Fabiani’s share of user spending has increased modestly over the past five years.  G-Star Raw, Exact and The FIX have performed even better – all increased their spending share.
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• It’s interesting to compare TFG’s sports-focused brands, sportscene and Totalsports. Panels 1 and 2 in Chart 3 show how both have increased their share of total TFG spending. And, while both brands have a similar average share of spending, sportscene has a much higher dispersion from different income segments. Notably, lower-income users contribute more than higher-income uses. For Totalsports, each income segment accounts for a similar share of total spending, and the growth trends across income brackets are similar.
• Markham is a significant brand for TFG, but Chart 3 shows how its share of spending has trended lower over the last five years. This trend is consistent across income segments.
• Homeware brand @home is shown in Chart 4. It’s the brand that attracts the greatest share of spend, mostly from higher-income users. @home gained share in 2020 and 2021, but that share has since declined in each income segment in 2022. This likely reflects a normalisation of post-Covid nesting.
• According to our findings, Foschini is the largest standalone clothing brand in the TFG stable. Its share of total user spending has increased in the R25-70kpm income bracket.
• Of TFG’s two jewellery brands, users have allocated more of their total TFG spend over the last five years to the smaller Sterns brand than to larger American Swiss.

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Now, to store numbers…

TFG has a long history of financial information that allows us to chart store numbers across brands. This information, used in conjunction with the 22seven spending analysis, provides a good picture of overall brand-building performance.

The following charts show TFG’s store numbers by brand in South Africa over the last 17 years. Again, we’ve separated them into four sections for ease of reference.
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Observations:

• It’s very difficult for a brand to grow bigger than 350 stores in South Africa. Of TFG’s long-standing brands, only Markham achieved this – temporarily – in 2018.
• Chart 6 shows how store numbers for TFG’s largest brands increased rapidly in the decade leading up to 2018. Thereafter, store numbers for most brands declined and have since stabilised, with little growth in numbers in recent years.
• Totalsports and sportscene are the stand-out growth performers over the period. From ~100 stores 17 years ago, both brands had 310+ stores in 2022. sportscene’s growth seems likely to continue.
• Jet is big. With more than 400 stores, it has a much larger store base than any existing TFG brand. As we’ve suggested previously, the opportunity for TFG here is to drive sales density at existing Jet stores, rather than significantly expanding the brand’s store footprint.
• The mid-sized brands are shown in Chart 7. For most of them, store numbers peaked before 2020. Based on the trajectory of these brands over the last eight years, it’s likely that the opportunity for these brands in South Africa is saturated.
• TFG’s growth brands are featured in Chart 8. Sharp increases in store numbers for Relay Jeans and Sneaker Factory show management’s confidence in these brands becoming the future engines for growth. Other brands with increasing store numbers include RFO, Fabiani and @homelivingspace.
• Finally, Chart 8 is a reminder of brands from the past. 26 brands have traded under the TFG banner over the past decade (excluding Jet), and on our count there are six that are no longer trading today – a survival rate of 74%. Closures are to be expected, of course, but it’s a reminder that even seemingly established brands die. Due South reached 77 stores and Donna reached 100+ before failing. This information curbs our enthusiasm for the success of rapidly growing brands like Sneaker Factory and Relay Jeans…
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What does this mean for future growth? If the brands in Chart 6 and Chart 7 are relatively mature and their growth prospects are limited (with the exception of sportscene) Insights estimates that the remaining ‘growth’ brands need to expand their store numbers by 19-23% pa, for the overall store base to increase by 5% pa.

What have we learned?

The following chart summarises both data sets: 22seven user spending data and TFG’s reported store numbers.

• In the top-right quadrant, it shows that growth in user spending at brands like sportscene and Sneaker Factory is consistent with growth in store numbers.
• In the lower left quadrant, the decline in user spending is consistent with the brands that have shut down over the period.
• Spending at Foschini has increased, while its store numbers have decreased, suggesting positive increases in store density (sales per store).
• Of concern, user spending at @home has decline substantially, while the store base (@home plus @homelivingspaces) has declined only modestly. This indicates a shift in spending that is not yet reflected in the reallocation of TFG’s real estate.

Mr Price wants to become the most valuable retailer in Africa, which is ambitious. Today, it’s maybe the fifth biggest retailer in Africa with about one third of the market capitalisation of the largest. Achieving its objective will require some doing – and a lot of growth!

Having retreated from off-shore escapades in Australia and Poland, and showing tentative appetite for expansion in the rest of Africa, the implication of this statement is that growth must come from South Africa. But how?

Our understanding is that while value is most often determined by a company’s shareholders, management does have control over earnings. To this end, Mr Price articulates multiple actions that it is undertaking for organic and inorganic growth. Recent organic growth has been disappointing, however – something that we predicted as early as November – and total growth has benefited from three sizeable acquisitions over recent years.

A matrix of future opportunities has been a feature of Mr Price’s analyst presentations for a few years now. This matrix stratifies different product categories (Apparel, Homeware, Financial Services & Telecoms and E-commerce) into different product segments (Value, Aspirational, Premium and Luxury).  

In the most recent results presentation, Mr Price also showed a breakdown of consumer spending by LSM (Living Standard Measure – a widely used but flawed measure of income, now replaced by the SEM) that showed the significance of higher LSM groups to total expenditure in South Africa. Customers in LSM groups 8-10, earning more than cR15k pm, make up just 25% of households but 56% of expenditure.

Management commented that Mr Price had never ‘tackled’ the upper-income end of the market. The more subtle point is that future endeavours into this end of the market promise rich margins, which management expects might offset the potential margin dilution from recent acquisitions in the Value segment.

In other words, expanding from its current stronghold as a Value retailer into the higher-income end of the market is important, both for sales growth – given the absolute size of this market – and for sustaining Mr Price’s margin into the future.

How should investors evaluate this strategy? Is it reasonable?

What follows is, we believe, the most detailed retailer-level decomposition of the South African Apparel market, across income and product segments, available to investors or retailers.

We build on Mr Price’s segmentation of the apparel market into Value, Aspirational and Premium, based on 660,000 actual transactions by 45,000 22seven users at 140+ clothing and footwear retailers, split between four income brackets. The income bracket segmentation is important because South Africa’s notoriously wide income distribution means that consumers are not homogenous: What is Value to one consumer is Premium to another.

The objective of this report is to assist Mr Price shareholders in better understanding the context of the group’s starting position within the Apparel market; to better understand organic growth prospects; and to expose the opportunity set for inorganic growth.

In doing so, we highlight some hard truths about the structure of the South African Apparel market and conclude with a very short-list of potential acquisition targets in the upper-income segment. We identify these based on size, investability, and the likelihood of being a good-fit for Mr Price, based on preferences in their customers’ transaction behaviour.

We don’t know what Mr Price is incubating internally to catapult the growth of its existing brands, or what it might pay for an acquisition, but when the next deal is announced, don’t be surprised if it’s on this list…

The focus of this report is the Apparel market. Based on your feedback and interest, we can replicate this analysis for Home and other categories. Contact us and share your views.

Value to whom?

Every retailer positions its brand to influence consumer perception and to differentiate itself from competitors.

When retailers analyse a market, they often use a two-by-two matrix to visually represent how a retailer (subjectively) believes its brand offers something unique. Quality and Price are usually the variables, or in the clothing market, the level or type of ‘Fashion’ and Price.

Value, Aspirational and Premium are terms used to group retailer positioning on such a matrix. In a clothing market, for example, with Fashion increasing from left to right and Price increasing from bottom to top, Value retailers would be positioned in the lower left area. In that sense, Value retailers offer basic clothing with a few fashion features, at a reasonable price.

Aspirational retailers cluster closer to the middle of the matrix and sell fashion that most consumers want to wear but can’t afford to.

Premium retailers are at the top-right, selling high-fashion items that are only attainable to the few consumers who are prepared to pay a significant sum.

In a market where consumers are relatively homogenous, this type of analysis can be useful. But it requires more nuance in a market like South Africa, where we have a wide income spectrum and where price is a key variable in how a consumer perceives a brand. In other words, a consumer's income level will determine how they perceive a brand, which results in situations where – for example – one customer perceives a retailer as Value and another customer considers the same retailer as Premium.

Our goal is to estimate the market share of each retailer within four income brackets, and to stratify that share by segment (i.e. Value, Aspirational and Premium). We believe that such a granular understanding of where a retailer currently attracts its trade will reveal opportunities for expansion into new segments.

We start by decomposing the clothing and footwear market based on the contribution of different income brackets to total expenditure. We use the data provided by Mr Price for this.  

Next, we categorise 22seven users into income brackets aligned to the LSM categories in the Mr Price report, and we identify transactions at more than 140 clothing and footwear retailers.

We can now consider market share for each product segment. But how to segment the market into Value, Aspirational and Premium? These are subjective marketing terms and they largely have to do with price. In other words, the price that customers are willing to pay to shop at a certain retailer is an indication of that retailer’s positioning to those customers. Using that logic, we can analyse transaction values to determine which segment a retailer fits into.

To go into more detail about our method… We ranked each retailer by the median transaction value of all user transactions within each income segment, then we segmented the retailers within each income group using the following rule: The transaction values of Value retailers rank in the bottom 55%, Aspirational retailers rank between 55-80%, and Premium retailers rank in the top 20%.

If that’s a lot to take in, maybe the following chart will make it easier to visualise. Each dot is a retailer and corresponds to the median transaction value at that retailer by 22seven users in the specific income bracket. The retailers in the bottom half are seen as Value retailers to the users in that income bracket, the next 25% are Aspirational retailers, and the top 20% are Premium retailers.

(Note that that median transaction values appear to cluster at specific values – many dots at the same horizontal level. Our rule to segment retailers into Value, Aspirational and Premium might be subjective but it takes guidance from these thresholds or price levels.)

Some observations from this chart:

• The upper transaction values for each segment increases with income. In other words, what customers pay at some Value retailers in the highest income bracket is what customers earning R7.5–15k pm pay at a Premium retailer.
• The number of dots increase with income, meaning that higher-income customers shop at more retailers than lower-income customers. For example, customers earning R25k+ pm shop at 75 Value retailers, whereas customers earning R7–15k pm shop at only 26 Value retailers. This is a significant observation that will become more apparent when we estimate market value in the next step.
• The samples are large and the data is amazing, but it isn’t perfect. Insights tracks transactions at more than 140 clothing and footwear retailers, but there are likely to be more. We also ignore instances where there are fewer than 30 transactions at a retailer in an income bracket. Finally, we do not include Woolworths in this analysis because we’re unable to distinguish clothing transactions from food and the majority of its revenue is food.

Having categorised every retailer into a product segment for each income bracket, we then added up the value of spending by customers at each retailer. This allows us to estimate the contribution of each segment to spending in each bracket, and to disaggregate each segment by retailer. The graphic below shows how spending in each income bracket is allocated to Value, Aspirational and Premium retailers.

Some observations:

• The doughnuts are sized to mirror the contribution of each income bracket to total expentiture. This proportion is shown in the centre of the donut. For example customers earning more than R25k pm account for 31% of total spending, customers earning R7.5-15k pm account for 24% of spending and so on.
• In the two lower-income brackets, market share by product segment aligns with the rule used to categorise retailers: Value retailers c55%, Aspirational retailers c25% and Premium retailers 20%. This implies that the higher frequency of transactions at Value retailers offsets the lower average transaction value.
• In the two higher-income brackets, spending at Value retailers accounts for more than 62% of total spending. This has to do with the distribution of transaction values in the higher-income segments: Even after controlling for outliers, there are some retailers where users spend very large amounts, but the low frequency of purchases does not compensate for this high transaction value.

The next graphic shows the top five retailers by market segment and income bracket.

We’re delighted you’ve read this far. But investment research is only valuable if it’s exclusive. To be fair to the retailers and investment teams who subscribe to Insights, we have to say goodbye before we get to the juicy bits.

Get in touch to find out how our research can help you. simon.a@22seven.com

Black Friday is a big deal. Half of the 1,400 22seven users surveyed by Insights at the beginning of November indicated they were deliberately holding back purchases in the hope of a better price during a Black Friday promotion. A third of respondents knew what they wanted and were keeping an eye out for a better price, and another third were keeping financial powder dry for an irresistible deal.

Respondents spanned the income spectrum and were most likely to buy online. (See here for further details.) Respondents who were only planning to shop in-store were in the minority, which further highlights the significance of online/omni-channel options for most consumers. (The likelihood of respondents to an online survey being more digitally inclined is not lost on us, but the skew in the answer distribution to this question was still significant: only 10% of respondents across a wide range of incomes expected to only shop in-store.)

BankServ tells us that total spending through its network increased by 16.24% on Friday 25 November, compared to the year before. Since this is only a measure of spending on the day and does not include spending when the retailer’s point-of-sale and customer’s card issuer are the same, it’s not necessarily the most accurate reflection of retailer performance. What about spending on pre-Black Friday promotions, for example?

Yes, Black Friday is more than one day for retailers – it’s a month-long push for sales. Depending on the category, Black Friday festivities mean that spending during November accounts for 9-13% of total annual spend. (On average, a month should account for 8%.) November is even more significant for online retailers, where it counts for 12-13% of total annual spend by 22seven users. (Spending peaks for online retailers in November; December is the peak spending month for most other retailers.)

Considering that the whole of November is a crucial trading month for retailers, who won Black Friday this year? Which retailer outperformed its competitors, and which improved on its own previous performance?

To answer these questions, we contrasted user spending at a wide range of retailers from June to November, in 2020, 2021 and 2022. We therefore judged a retailer’s Black Friday performance in terms of the monthly change in spending over the six months leading up to November. Doing so reveals the trajectory of growth over the period.

The chart below shows the category-level results. Spending on furniture increased the most in November – as it has done in previous years – and by more than it increased in 2021. Grocery spending declined marginally in November this year compared to October. (Last year, spending increased in November compared to October.)

Spending on apparel and general merchandise increased in November 2022, but at a slightly slower rate than in 2021. Spending at major DIY retailers declined in November 2022 – a significantly weaker performance than the year before.

Category growth

So, if shoppers were mostly after homeware, apparel, and general goods on Black Friday (the latter category includes major electronics and online retailers like Takealot) at the expense of groceries and DIY products, which retailers outperformed and which underperformed?

The answers are in the charts below. Let’s begin with the grocers…

Grocery

The change in spending in November 2022 at the main grocery retailers was lower than in 2021. Spending at PnP increased at a faster rate in November 2022 compared to October, whereas the rate of growth declined at Checkers, Spar and Woolworths. Woolworths delivered the strongest cumulative trading performance over the past two months. Spar experienced the weakest growth in spending during November.

We note that sales growth dipped sharply for all grocery retailers in September 2022 when loadshedding intensified.

Apparel

We plot these over two charts with MRP on the left of both, to help calibrate performance between the two.

CottonOn, TFG and Superbalist outperformed this group of retailers during November, each with a similar shape of monthly growth in 2022 as in 2021. For the first time in three years, spending at MRP declined in November compared to October. Given the size of MRP, this suggests that it underperformed in November and over Black Friday.

Albeit at a lower absolute rate of change, the data suggests that Truworths performed well in November 2022 compared to its own history, with spending increasing at the highest rate in November 2022 compared to the two years before.

Spending at Retailability – mostly Edgars – increased for two consecutive months, whereas spending at H&M slowed. Zara appears to have had a challenging six months after a strong start to the year.

The data suggests that spending at Pep & Ackermans did not increase meaningfully in November in prior years, and this trend continued in 2022.

General Merchandise

This category includes many products that are sought after in Black Friday promotions, like home appliances and electronics. Among the retailers we track, spending at Incredible Connection increased the most in November, and at a faster rate than in 2021. We note a much weaker October 2022 than October 2021, however, which may dilute November’s performance.

As to be expected, spending at Takealot increased sharply in November and at a similar rate and trajectory of monthly growth as in previous years.

We include OneDayOnly in this group, too, because November accounts for its highest proportion of total spending than any other retailer included in this analysis: c14%. It had a much stronger performance in November than in previous years.

Spending at Makro increased in November, but not to the same degree as in previous years.

Furniture

The furniture segment delivered strong growth in spending in November and a better 2022 result than in 2021. Insights data shows that @home delivered the strongest growth in November and better performance than in 2022. Tapestry Brands followed close behind, suggesting a good overall performance for TFG’s furniture business.

JD Group brands – mostly Rochester, Russells and Bradlows – performed well but at a slower pace in November than in previous years.

Spending at MRP Home stores performed better than at MRP brand stores.

And the winner is…

This analysis has evaluated retailers’ Black Friday performance based on the month-on-month change in spending in November – compared to competitors’ growth and compared to 2021 and 2020 growth for the retailer in question.

Overall, it seems that Black Friday triggers the highest increase in spending in the Apparel, Furniture and General Merchandise sectors. That said, monthly growth in spending in November 2022 was lower for all categories than in 2021, with spending declining among grocery and DIY retailers.

Of the major listed retailers analysed, the data indicates that PnP, Woolworths, TFG and Truworths outperformed in November 2022.

In ‘No stores necessary’, 22seven Insights showed how spending in the apparel sector is shifting towards online-only retailers like Shein and Superbalist, threatening the investable, mostly store-based part of the market. The customers leading the online-only change are young and they’ll carry their preferences forward as their spending power increases, and they’re high-value customers. After controlling for differences in income, we showed how customers who shop online spend more on clothing than their contemporaries who only shop in-store.

But what does this mean for profitability? After all, don’t online shoppers just return everything they order?

We’re going to attempt to answer this question by contrasting the transaction economics of in-store and online purchases, to quantify which channel is more profitable for retailers.

One of the truisms in retail is that every year a retailer must start from scratch. Sales – the revenue kind – are not guaranteed to recur in the next period. The base unit of sales is the transaction. Gross profit is earned on each transaction. Aggregated over many transactions, gross profit is used to pay for the cost of operations, people and taxes. Anything left over is available to the providers of capital.

Analysing profitability at the transaction level therefore seems like a good approach to contrast overall profitability between online and in-store sales. In most cases, the data to do this comparison simply doesn’t exist, but with the 22seven user base at our disposal, we were able to aggregate 280,000 actual transactions from real consumers to provide a quantitative assessment.

For anyone concerned about the future earnings of clothing retailers, this analysis provides a robust foundation to evaluate the assumptions in your forecasts. For a retailer, this note might give you an idea of how you stack up against your competitors.

Let’s explore the data…

Profit per transaction

This analysis seeks to contrast the gross profit of the marginal transaction. That is, when the store’s doors or website ‘open’ at the start of the year, what is the profit earned from the first online or in-store purchase.

In South Africa, most store-based clothing retailers distribute items that are purchased online from a store that is close to the customer. Similarly, sales from online-only retailers are fulfilled by staffed distribution centres.

Therefore, for the marginal order, the cost of the store or distribution infrastructure, and any personnel to fulfil the order, is fixed.

The key difference between the marginal gross profit of an online purchase versus an in-store purchase comes down to the transaction value, the gross profit margin, any delivery costs and the cost of returns. We’ll unpack each of these.‍

Transaction values and return frequencies

The value of online purchases is generally higher than in-store purchases because customers buy additional items and return clothes that don’t fit or clothes that aren’t as flattering in real life as they are worn by the model on the website.

We wanted to find out how much more people are spending online than in-store, and how often online orders are returned. To do so, we identified purchases and returns from 15 retailers:

• Five omnichannel retailers where Insights could distinguish online and in-store purchases: Mr Price, CottonOn, PnP Clothing, Sportsmans Warehouse and Cape Union Mart.
• Six retailers where Insights was not able to separate store purchases from online purchases, either because online transactions are channelled through a central payment gateway (Markhams and Sportscene) or because online is not available or is too small to be representative (Ackermans, Edgars, Zara and H&M). Although there may be a small contribution from online purchases in this group, we think it’s minor, so we refer to this category as in-store only.
• Three online-only retailers: Superbalist, Shein and Zando.
• For the sake of comparison, we also included the largest general merchandise online retailer, Takealot.

To estimate returns for each retailer, we compared the number and the value of returns (credits) to the number and value of purchases (debits) over six months.

Returns for omnichannel retailers are more difficult because items ordered online are often returned in-store. For these retailers, we identified all online purchases and restricted credits to the users who had previously purchased online. We used a similar method for in-store purchases: excluding users who had recently ordered online.

The average purchase and return value for each retailer is shown in the charts below. As an example, the average order value for Mr Price online is R584, and the average return value is R428. The average order value for Shein is R1,566, with a return value of R979. ‍

Average transaction values
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• The average online transaction value across all retailers (R1,107) is 55% higher than the average in-store transaction value (R713).
• It follows that the return value is also higher for orders that originate online (22%).
• For omnichannel retailers, online transaction values are 20-30% higher than in-store transaction values.
• The online order and return values for Cape Union Mart and Sportsmans Warehouse are significantly higher than their in-store values. This may be because they sell a wider range of goods, such as sports watches and technical equipment, than their peers.
• The average transaction values at online-only apparel retailers comfortably exceed the transaction values of their store-based competitors. Shein has the highest transaction value, on average.

Next question: How often are items returned?

Frequency of returns
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• On average, 15% of orders that originate online are returned, compared to only 3% of in-store purchases.
• 26% of Superbalist orders were returned during the six months ending August 2022. Since returns are typically of a lower value than the original purchase, returns accounted for 19% of total purchase values. Similarly, 24% of Zando orders were returned, with an overall value of 17% of all purchases.
• The frequency of returns for online orders at Cape Union Mart and Sportsmans Warehouse are higher than at other store-based retailers. We think this may be attributed to a variation in products ordered online via these retailers. See the comment above regarding transaction values.
• Albeit not as high as Sportsmans Warehouse and Cape Union Mart, online return frequencies are significantly higher for Mr Price and CottonOn compared to in-store return frequencies.
• Takealot is not a clothing retailer, but it’s the largest online retailer among 22seven users. c5% of Takealot purchases are returned.
• The frequency of Shein returns is low – only 3%. This is arguably because of the challenge of returning items. Although refunds are offered within a 30-day period, customers must package and ship their returns at their own expense.

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Free delivery: common but not standard

To estimate the delivery cost for the average online order, we compared the fees that retailers charge for delivery. In nearly all instances, delivery is free if the value of the order exceeds a certain threshold.

For most retailers, the cost of delivery is within a narrow range of R50-60 per order for orders less than R500-600. Shein has the highest delivery fee and the highest minimum order value, which most likely reflects the higher cost of distributing each order from China via air freight. (Note that this delivery fee excludes duties and other fees paid separately to third-party couriers on Shein orders because these do not impact the retailer’s profitability.)

We find it interesting that Mr Price is the only retailer that Insights could identify that does not offer free delivery. Customers are charged at least R50 for any online purchase, irrespective of the purchase value. As we show below, the recovery of this delivery cost from the customer is crucial to the economics of Mr Price’s online offer.

A further observation: In most examples, the average transaction value is 50%+ above the minimum required to qualify for free delivery. The outlier in our sample is PnP Clothing, where the average transaction value is only slightly higher (2%) than the R700 threshold to qualify for free delivery. This suggests that for most retailers, the free delivery threshold is not a meaningful barrier for most orders.

Delivery fees and minimum order thresholds
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Rands or margins?‍

Combining these findings, we are nearly able to estimate the gross profit (in rands) and the gross margin (in percent) for orders through each channel for each retailer.

The only assumption we make in this analysis is the average gross margin earned on the merchandise sold. Gross margin is influenced by the type of merchandise sold (branded vs in-house, footwear vs clothing, fitness watches vs accessories etc.) and it will vary for each retailer. To enable our comparison, we assumed a standard gross margin of 42% for all retailers. This level is informed by the last reported gross margins for Mr Price (42.1%) and TFG Africa (43.1%). Readers are welcome to request the spreadsheet to express their own views in the calculations.

In some cases, we have good reason to expect gross margins to be higher. For instance, H&M and Zara (parent company: Inditex) report significantly higher gross margins internationally, but high import duties in South Africa may mean these margins are lower locally. For this reason, we show a range for H&M and Zara.

In addition, although it’s a private company, some argue that the gross margin on Shein’s products could be even higher than other fast fashion retailers. For the purpose of this analysis, we show a range for Shein based on a low estimate (42% like Mr Price) and a high estimate (55% like H&M and Inditex).

The gross profit on an online order is calculated as follows:

(Purchase value * GP% - delivery cost) – %purchased returned*(Return value*GP% - delivery cost)

Gross margin = gross profit / transaction value

Let’s start with gross margin. For the five omnichannel retailers where we can compare in-store and online purchases, the cost of delivery and returns reduces gross margin by 10% percentage points on average.

For the three online-only retailers, the impact of delivery costs and returns is a reduction of c14% on the assumed gross margin of 42%.

Gross profit, shown in the chart below, is a different story. The three most striking observations are as follows:

The gross profit earned (in rands) on online purchases at the four omnichannel retailers is not meaningfully lower than the gross profit earned on the average in-store purchase.

Superbalist earns more gross profit per transaction than store-based clothing retailers like Edgars, Mr Price, CottonOn and Ackermans.

Shein generates the highest profit per transaction – as much as 2.8-3.7 times the average gross profit of competitors like Ackermans, Mr Price, CottonOn, Edgars and PnP Clothing.

Gross profit
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Why is this important?

Executives in charge of store-based retail chains often talk about getting the economics of online to ‘work’. Our findings across hundreds of thousands of transactions show that the gross profit earned for an online transaction is comparable to that earned for an in-store transaction. However, the margin is typically lower, sometimes significantly.

For that reason, online doesn’t complement the income statement of an established store-based retailer because a growing online contribution will dilute the group’s overall gross margin. (Here’s a tip for analysts assessing these businesses: If you expect online revenue share to grow, account for the diluting impact on gross margins.)

We have previously shown that Superbalist is a large retailer by South African standards. We estimate cR2.5bn in annual GMV. In this analysis, we’ve provided quantitative evidence that its gross profit is higher, on average, than many mainstream store-based clothing retailers. Since Superbalist is part of the Takealot group, it’s impossible to definitively assess whether the business is profitable. Takealot itself is not (yet) but when you compare Superbalist to its clothing competitors – many of them highly profitable listed businesses – the evidence suggests that it might well be.

Insights has alerted readers to the rapid gains that Shein has made in South Africa since its launch two years ago. We have shown that these gains are a function of enormous growth in the number of users experimenting with the service, multiplied by outsized transaction baskets – as much as 4x the average transaction value than store-based competitors. Put another way, users shopping at Shein are effectively shopping once, whereas they might have shopped at four other local retailers. In this note, we’ve provided additional evidence that Shein earns 2.5-3.8 times more per transaction than many large, listed retailers. Shein’s impact on the South African market’s revenue share has been sudden and disruptive, and its impact on profit share may be even more so…

Please get in touch if you would like any further info.

South Africa’s gambling industry has undergone a seismic shift over the past two decades. Once limited to casinos and the National Lottery, the sector exploded in scale and accessibility following the 2004 National Gambling Act, which legalised sports betting beyond horse racing and laid the groundwork for online gambling.

Today, gambling is deeply woven into South African consumer behaviour, with the industry hitting R1.14 trillion in turnover in 2023/2024—and sports betting alone contributing R761 billion, or 66.6% of the total market.

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But just how embedded is gambling in South African spending habits? Our recently improved dataset now features more than 640 000 unique South Africans and continues to grow everyday. Within this dataset, a staggering 204 289 unique individuals placed deposits with an online betting company between August 2023 and January 2025—accounting for nearly 30% of all users analysed.

And that’s likely an underestimate, as it excludes voucher-based deposits (such as FNB’s 1voucher system) and cash deposits at branded kiosks. As our dataset comprises roughly 2% of all South Africans with bank accounts, seeing 30% of these active in the gambling space could mean as much as 10 million South Africans have participated in the industry.

With such a significant portion of the population engaged in online betting, the question isn’t just how much money is being wagered but rather who is betting, where they are betting, and how engaging with betting affects their overall spending decisions.

This month, we analyse deposit transactions across major gambling providers and the National Lottery, breaking down the trends, demographics, and behavioural shifts shaping South Africa’s growing gambling economy.

The Growth: Gambling on the Rise

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Our data reveals that the gambling sector continues to expand at an exceptional pace. Looking at the differences between December 2023 and December 2024, we find that the 10 largest online bookmakers recorded a 32% year-on-year growth rate in deposit value and an exceptional 43% year-on-year growth rate in total deposits. For comparison, the National Lottery saw a 13% year-on-year growth rate in total deposits over the same period. 

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The Market Players: Who’s Playing and How Much Are They Spending?

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From the graph below, it’s evident that the National Lottery is still the dominant way in which South Africans gamble, with more than 33% of gamblers in our dataset having bought at least one Lotto ticket within the analysis timeframe. This means that they have 48% more unique customers in our dataset than the closest online gambling competitor - Betway - who managed to capture the spend of almost 23% of all unique gamblers in our dataset. Hollywoodbets closes out the top three, with a 21.7% market share. 

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However, when looking at the total number of deposit transactions made, a very different picture emerges. The National Lottery only accounts for 19.2% of all deposit volumes over the period of analysis. Hollywoodbets is the dominant player by some distance - managing to capture an incredible 40% of all transactions made over the period of analysis.  Betway trails its biggest competitor by some distance, capturing just over 24% of the market by deposit volume. 

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However, it should be noted that National Lottery players aren’t big gamblers. Our data reveals that, despite having one of the highest average monthly incomes (almost R21 000), the average National Lottery player only bets just R48.85 per deposit. This is by far the smallest average deposit size of all the merchants analysed. The next smallest average deposit size was Easybet at R146.22 (almost 3 times the size of the National Lottery). National Lottery players also deposit significantly less frequently than the players at the major online bookmakers. 

Looking at this data, it becomes apparent that the Lotto players are more casual in their engagement—tending to wager small, infrequent amounts as opposed to more frequent and larger deposits seen at the online bookmakers. That being said, a big growth opportunity for gambling providers could be converting casual National Lottery players into more active gamblers.

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Looking more specifically at the online bookmakers themselves, it becomes clear that there is segmentation of customer bases along the lines of income. SunBet - who has the highest income earning average customer at R21 229 -  has positioned itself as a platform for high-rollers, SunBet are likely converting existing casino customers into online sports bettors. Their customers’ deposit sizes are significantly higher than those of any of the other bookmakers analysed, hinting that traditional casino gamblers are transitioning onto digital betting platforms with substantial stakes. 

This notion of SunBet attracting larger, more risk-seeking punters is further cemented when looking at the relationship between how its average (mean) player bets on a monthly basis relative to its median player. You can see from the graph below that SunBet’s average customer bets more on a monthly basis (R3 111) than any other bookmaker’s average player. However, the median spend at SunBet is significantly lower at R200 - which places it in the middle of the pack of the merchants analysed. This large divergence between the mean and median monthly spend suggests that SunBet have managed to capture the attention of serious punters whose large wager sizes have skewed the mean. The implication here is that SunBets currently makes the majority of its revenue from these larger ‘whale’-like players.

Unsurprisingly, the retention and continued loyalty of these players will be at the top of SunBet executives' minds, which may have led to the rollout of its Sun MVG Loyalty Programme. This programme allows online punters to earn points for betting and exchange these points for in-person experience rewards at one of the many Sun International’s casinos and hotels. Cleverly, this allows SunBet to leverage one of its true differentiators among its online bookmaker peers - its holding company’s brick-and-mortar hospitality offering.

Yesplay and Hollywoodbets, on the other hand, have firmly established themselves among earners who earn less than R16 000. These players tend to make smaller deposits but on a far more frequent basis than their higher-earning peers. However, this is where the similarities end—Hollywoodbets is the clear market leader in all aspects, whilst Yesplay is consistently toward the bottom end of the pack of the bookmakers analysed.

Hollywoodbets has the second highest mean spend per customer per month (R3 092) of all the bookmakers analysed. However, unlike SunBets, it enjoys the highest median spend of any of the bookmakers. In fact, Hollywoodbets’ median spend is 28% more than its closest peer on this metric - Lottostar. This suggests that there may be a structural difference between Hollywoodbets and the rest of the market as it appears to enjoy broad appeal by smaller and more prominent players alike. It is consistently best-in-class across the majority of metrics we analysed.

When Are South Africans Gambling? Weekend vs. Weekday Trends

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According to the National Gambling Board data, sports betting accounts for 66.6% of all gambling activity, compared to casinos, which account for 26%. Therefore, deposits are expected to follow a cyclical pattern around weekends, when most of the premium sports fixtures take place. Our data confirms this.

We analysed the weekly deposit pattern of Betway customers, looking at both frequency and value of deposits by day of the week:

• On average, deposit value increases gradually throughout the working week and peaks on Friday before dropping rapidly over the weekend. Looking at the graph below, more than 17% of all deposit value at Betway over the period of analysis occurred on Friday.
• The frequency of deposits, on average, follow a similar pattern as above - also peaking on a Friday and then rapidly dropping off by Sunday.
• This pattern changes somewhat when looking at the total number of unique customers who deposited by day of the week. Saturdays, on average, had the most unique punters over the time period of our analysis. 

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This seems to suggest that there is a two-tier betting economy happening throughout the week at Betway: 

• Habitual, larger stake bettors are more likely to deposit strategically earlier in the week. Many may be looking to leverage the regular day-of-the-week deposit promotions at Betway - such as Top Up Tuesday or Freebie Friday. These promotions offer punters a mechanism through which they can increase their stake size by depositing on certain days of the week.
• More casual, infrequent players are more likely to deposit over the weekend, perhaps in anticipation of a large sporting event after succumbing to the weekend hype.

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Who’s Betting? A Look at Age Groups

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The age profile of South African gamblers varies significantly across platforms, reflecting different marketing strategies, brand positioning, and customer preferences. It is important to note that our underlying dataset does skew younger, with the majority of people being between 25 and 45. However, there are still some interesting variations across bookmakers' customer base by age.

Betway has captured a younger audience, likely driven by its high-visibility sponsorships in major sports leagues and strong digital presence. By aligning with popular sporting events and mobile-first engagement strategies, Betway has positioned itself as the go-to platform for younger, digitally native bettors.

Unsurprisingly, SunBet appeals to an older demographic, many of whom are long-time casino players transitioning to online betting. Lottostar also appears to appeal to an older demographic than Yesplay or Hollywoodbets. 

Meanwhile, the National Lottery maintains a broad customer base but trends toward an older demographic, reflecting its longstanding presence in South African gambling culture. Unlike sports betting, which relies on real-time engagement and game-specific wagering, the lottery’s appeal remains rooted in tradition and the allure of life-changing jackpots.

This demographic split underscores a significant shift in South Africa’s gambling industry. Sports betting is expanding beyond its traditional audience, bringing in younger, mobile-first consumers who may not have previously engaged with gambling. This trend will likely accelerate as more digital platforms tailor their offerings to new generations of bettors.

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How Much of Their Income Are South Africans Betting?

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A key question in gambling economics is how much of a person’s income is allocated to betting. Our data suggests that for the majority of players, gambling remains a discretionary entertainment expense rather than a financial risk - but notable differences emerge across merchants and player segments.

As expected, the National Lottery players overwhelmingly deposit less than 1% of their monthly income to play for the chance to win the jackpot. As established above, National Lottery players earn a higher monthly income, on average, than the majority of the online bookmakers players. This indicates that Lottery wagers are largely casual, with small, low-frequency wagers that won’t significantly impact household finances. 

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For the vast majority of customers at online bookmakers, deposit amounts are less than 1% of their monthly income. This reinforces the idea that betting is a leisure activity rather than a financial burden for the majority of players. However, the online bookmakers do see a significantly larger portion of their customer base depositing more than 1% of the monthly income relative to the National Lottery. Sports betting appears to appeal to a broader range of income groups and behaviours, from occasional bettors placing small, social wagers to high-frequency users engaging in larger transactions. The high-spender segment is evident, particularly among SunBet users, where deposit sizes suggest that some players are engaging in high-stakes betting, possibly mirroring traditional casino gambling behaviour in an online setting.

These insights highlight the industry's dual nature—while most players engage in low-risk gambling, a smaller but significant segment of high-stakes bettors remains, shaping revenue distribution across platforms.

What else are gamblers spending their money on?

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We looked deeper into our data to see how gambling might be influencing purchasing behaviour and how this might differ from their non-gambling peers. For this analysis, we have segmented our dataset into two groups:

• Gamblers: Any individual in the dataset who has spent at least R450 (twice the size of the median deposit) collectively and made at least 3 deposits at an online gambling bookmaker during the 2024 calendar year. These filters are used to ensure we capture the purchasing behaviours of more serious gamblers and exclude casual players who may have made a couple of low-value deposits as an experiment.
• Non-gamblers: Everyone else in the dataset. This would include individuals who did not gamble at all in 2024, individuals who played the National Lottery but never placed a bet with an online bookmaker and individuals who made one or two low-stakes bets with an online bookmaker.

We then segmented these two groups again into their respective age cohorts. This is done to control for the effects that age (or life stage) may have on consumer purchasing decisions. We have again bucketed the data into the 4 age groupings seen above:

• 18-25
• 25-35
• 35-55
• 55+

Finally, we use the median spend to assess differences between bettors and non-bettors within age groupings. The median spend has been chosen to negate the effects of extreme spending by a small portion of bettors, which may have an outsized effect on the observed averages. 

Gambling and Alcohol Spend

We have looked at how gamblers and non-gamblers spend on alcohol on a monthly basis. For the purposes of this analysis, alcohol spend is defined as any spend made at a liquor store (online or in-store), bar, tavern or any other establishment with clear links to the consumption of alcohol.

Alcohol spend for both bettors and non-bettors increases with age and peaks in the 35-55 age bracket before dropping off at the 55+ age group.

Across all age groupings, the median gambler consistently outspends their non-gambler peers on alcohol. The largest disparity occurs in the 25-35 age group, where the median gambler spends 22% more on alcohol than their non-gambling counterparts.

This pattern suggests that gambling and alcohol consumption may be more closely linked in younger demographics - potentially reflecting social habits driven by sports betting culture, where gambling and social drinking often go hand in hand.

For brands in the alcohol and hospitality sectors, this presents a clear opportunity for cross-promotional partnerships with betting platforms. This is likely particularly true for premium liquor brands, sports bars, and event-based activations. Whether through exclusive betting-linked drink promotions, VIP lounge experiences, or co-branded sports event sponsorships, tapping into this high-spending consumer overlap could prove to be an effective engagement strategy.

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Gambling and Cellular Spend

Next, we looked at how gamblers and non-gamblers spend on cellphone and cellphone-related expenses on a monthly basis. For the purposes of this analysis, cellphone-related spend is defined as any spend made on a mobile phone, prepaid airtime and data, a monthly contract with a South African telecommunications company (including MVNOs) or any other merchant that has clear links to selling cellphone accessories or repairs.

Interestingly, cellphone-related spend for both bettors and non-bettors consistently increases with age - peaking for both groups in the highest age bracket (55+). This may be related to the correlation between cellphone-spend and monthly income, with older individuals in the dataset earning more, on average, than their younger peers.

Across all age groupings, the median gambler consistently outspends their non-gambler peers on cellular-related spend. The most significant disparity occurs among the youngest age (18-25) group, where the median gambler spends a massive 56% more a month on mobile-related expenditure than their non-gambling counterparts. 

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On the surface, this finding is unsurprising, considering most of these bookmakers are primarily online-first businesses, and the majority of South Africans would be accessing their sites via mobile phones. However, the rise of data-free technology and its adoption by major online bookmakers, including Betway and Hollywoodbets, may challenge this implicit logic in the future. The data-free versions of their websites are simpler but allow the player to access all the key features - including viewing odds, depositing money, u bets and withdrawing money.

For gambling operators, this may present a clear opportunity to partner with mobile service providers to offer engagement promotions and loyalty programmes with mobile data as the core offering. These partnerships could enhance user accessibility, reduce friction in engagement, and solidify mobile as the primary gateway for betting activity in this demographic.

Gambling and Eating Out

Next, we analyse how gamblers and non-gamblers spend on eating out on a monthly basis. For the purposes of this analysis, eating out expenditure is defined as any spend made dining at a restaurant, quick-service restaurants (QSRs), or ordering from a meal delivery service such as Uber Eats.

Interestingly, eating-out expenditure peaks for both bettors and non-bettors in the 25-35 age group. It then declines gradually among older individuals in the dataset. This may relate to the fact that individuals in the 25-35 age bracket, on average, have fewer dependents to support and fewer financed assets to repay.

It is striking the degree to which bettors outspend their non-betting peers as it relates to eating out for every age group. Much like the cellphone expenditure, the largest disparity occurs among the youngest age (18-25) group, where the median gambler spends a massive 52% more a month on eating out than their non-gambling counterparts.

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This trend suggests that younger bettors have higher discretionary spending habits, making restaurants, fast-food chains, and delivery services prime candidates for strategic partnerships with gambling operators. Collaborations such as bet-and-dine promotions, exclusive discounts, or gamified loyalty programs could create a mutually beneficial ecosystem, driving customer acquisition and higher engagement for both industries.

Gambling and Holiday & Travel Spend

Finally, we look at how gamblers and non-gamblers spend on holiday and travel expenses on a monthly basis. For the purposes of this analysis, holiday and travel spend is defined as any expenditure on long-distance travel (local and international airlines, long-haul bus operators, etc., but not Uber trips, trains or taxis), hotels or temporary accommodation, travel agents, and any expenditure expressly related to a holiday.

For the first time in this analysis, the trend of the spend by bettors and non-bettors does not move in tandem. For non-bettors, holiday and travel expenditure increases systematically with age. However, for bettors holiday and travel expenses peak in the 35-55 age category and then show a slight relative decline  in the 55+ age bracket.

Unlike the 3 spend categories analysed above, non-bettors consistently outspend their bettor peers across all age brackets. The largest disparity occurs among the oldest age (55+) group, where the median non-gambler spends 26% more a month on enjoying holidays and travel than their gambling counterparts.

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Concluding Thoughts

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The rapid growth of online gambling in South Africa signals a fundamental shift in consumer behaviour—one where digital accessibility, evolving demographics, and strategic marketing are converging to create a permanently embedded industry. The numbers are clear: sports betting dominates, the betting market exhibits a power law distribution with a few big players accruing the majority of the revenue and high rollers fuel profitability - making loyalty programmes all the more important.

But where is the real growth opportunity? Some platforms, like Yesplay, focus on onboarding more casual players and lower-income earners—their long-term value hinges on whether these users convert into high-value bettors. Meanwhile, SunBet and Lottostar have already outperformed in attracting a wealthier market. This contrast suggests that South African operators face a strategic crossroads: ruthlessly pursue mass adoption with high-volume, low-value bets or spend to acquire top-tier spenders and then go all-in on retaining them.

Regulation will also be a defining factor. With nearly 30% of the dataset transacting with licensed betting companies, the legal framework will need to balance industry expansion with responsible gambling measures. The challenge for regulators will be curbing excessive spending among high-risk users while allowing the sector to continue its rapid growth trajectory.

Another critical battleground is data-driven engagement. With players generating rich transactional data, operators have an opportunity to refine targeting, optimise odds, and drive repeat spending through hyper-personalised promotions. Platforms that successfully integrate AI-driven recommendations and loyalty mechanics will not only increase customer lifetime value but also build stronger brand affinity.

Looking ahead, South Africa’s online gambling market is unlikely to slow down—but where the money flows and who captures the most value remains uncertain. International brands are well-positioned, but local operators have the advantage of market familiarity. Whether the future is defined by high-roller segmentation, mass-market adoption, or regulatory shifts, one thing is certain: this is no longer a niche industry in South Africa—it’s mainstream consumer behaviour.

Understanding consumer behaviour beyond direct gambling transactions is key to identifying new acquisition strategies and high-value partnerships. Cross-market analysis reveals meaningful overlaps in spending habits, such as higher dining and alcohol spend among gamblers or increased mobile data reliance among younger bettors. These insights highlight where and how gambling operators can engage potential customers more effectively—whether through strategic brand partnerships, tailored promotions, or incentive-driven collaborations. By leveraging cross-sector spending trends, operators can move beyond traditional advertising and embed themselves into the broader consumer lifestyle, creating more compelling, high-converting engagement strategies.

That concludes this month’s ShopTalk. For more insights on this industry and others, feel free to contact us by replying to this email.

Until next month,

Reveal Data

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