We know that legally it doesn’t matter where you are located or where you are selling to become a dropshipper, so why is it so difficult to dropship in South Africa?
In this article, I’d like to present you with my findings and first-hand experience as a South African dropshipper.
What is dropshipping?
Let’s start with a quick summary of what dropshipping involves.
Dropshipping is a business that provides equal opportunities to everyone and is a quick and low-cost business to start.
Because the dropshipping business model allows you to list and sell products you haven’t bought yet, you don’t need start-up capital for inventory.
When you sell an item, the supplier will deliver it straight to the customer. Simple!
If you’re interested in learning more about the basics, I suggest checking out this article.
Now that you know the basics of dropshipping, let’s look at the feasibility of this model in South Africa:
Why start a dropshipping business in South Africa?
According to a recent survey, the ecommerce landscape in South Africa is growing rapidly, spurred on by increased internet user penetration and, more recently, due to the demand for online deliveries brought about by the Covid-19 pandemic.
The survey reports that 68% of South African consumers say that they are shopping more online since the onset of the Covid-19 pandemic.
There was a 66% total growth for online retail in South Africa in 2020, bringing online retail figures to R30,2-billion. This is almost double the R14.1-billion reached in 2018!
With this young, growing economy being a gateway to the rest of Africa, entrepreneurs in South Africa are actively investigating dropshipping.
The industry is, however, immature and presents some challenges. Therefore, if you are investigating dropshipping in South Africa, you need to make several region-specific decisions about your store.
Choosing your target market
The most important one is the choice of the target market. You have three choices when starting a dropshipping business in South Africa that I’d like to outline for you.
Here are the three options that I’ll cover below:
If so, let’s begin:
Dropshipping from local South African suppliers to South African customers
This was the most obvious first choice for me to investigate when I started dropshipping. I know the laws, I have a fair idea of what South African consumers want and can therefore target my audience well.
After deciding on my niche, I set out to find reliable suppliers.
Suppliers prepared to work with dropshippers were difficult to find. Many were not even informed about what dropshipping involves!
I found a handful of dropshipping suppliers that provide automated integration with dropshipping stores to make the experience for both the dropshippers and their suppliers easier and uninterrupted.
On integration with some of these suppliers, I realized that the choice of both suppliers and products was limited, resulting in many aspiring dropshippers all trying to sell the same products!
Contacting wholesalers and manufacturers directly was my next port of call.
Unlike their international counterparts, I learned that South African businesses are yet to see the value of enabling dropshippers to access their stock and seem afraid of having no control of the pricing (thanks to the government’s price control laws).
These laws dictate that wholesalers cannot dictate prices to retailers. This means that big wholesalers who have built long-standing relationships with all the big chains wouldn’t be able to stop a dropshipper from undercutting their biggest retail partners, ultimately damaging the brand.
Many international wholesalers give their dropshipping sellers greatly reduced margins because the wholesaler carries the risk on the stock. The South African local market of potential customers is much smaller than that of international markets, and these margins are just too thin to be profitable.
Businesses offering ready-made stores also look to entice South African dropshippers. However, after investigating this option, I quickly realized that the “connected suppliers” were not local but based abroad.
And so, my next step was to explore the feasibility of dropshipping from China to South Africa.
Dropshipping from China to South African customers
It seemed like a solution to set up suppliers in the East who could ship products to South African customers.
Using Oberlo or even AliExpress directly (note that not all AliExpress suppliers ship to South Africa), it was possible to list their products on my site and arrange deliveries straight to SA customers as orders came in.
To keep the costs low and to make this business case successful, I would have needed to ship the parcel via China’s local postal service who hand it over to the SA postal service.
This is where this option falls over, with delivery times (if there is a delivery at all) using AliExpress taking 40-59 days and an absolutely unaffordable shipping cost.
As you can imagine, this doesn’t sit well with the South African consumer who is already worried about online fraud and still hesitates before shopping online.
Furthermore, the option of sending the parcel by courier to get it to the customer quicker was way too costly.
Customs fees are the next challenge. There are duties for imported goods over R500.00 (approx. $34.00), and the consumer gets penalized further after three purchases.
A dropshipper needs to be sure to make its customer aware of these extra costs to their purchase.
I also worried about putting cash into advertising a product that I hadn’t personally tested. Testing wasn’t viable as, by the time I had received the product, it was likely that I had lost the opportunity to capitalize on a “winning product”.
Customer returns were another barrier. To offer good customer service, it would have been necessary to provide a free replacement or a refund in light of long shipping times and costs.
The final and….wait for it… SUCCESSFUL route that I took was to research the possibility of dropshipping to other international destinations (when operating from South Africa).
Let’s look at some of the factors that make operating from South Africa a little different.
Dropshipping to other international destinations (when operating from South Africa)
The model I’ve ultimately followed, yielding successful results for me, is to dropship from one international destination to another with South Africa as my home base.
With good management and a few tweaks, this model works.
So let’s discuss what you need to watch out for when dropshipping to international destinations as a South African:
Select the correct payment gateway
A South African citizen is prohibited from using Stripe or Shopify Payments and needs to rely on Paypal.
Paypal has developed a relationship for managing their risk by putting a hold on the funds in your account until they deem that the transaction is “safe”. This does not seem to be a problem if your paperwork is in order until you need to scale.
As soon as you are in that position, your funds on hold can create a worrying cash flow problem.
A further challenge is that Paypal is only integrated with one bank in South Africa (First National Bank). Because they are not my bank, I needed to get complicated approvals to withdraw my funds to my bank account.
For more information on how not to get banned when using PayPal, check out our other article here.
Prepare to establish a US company when you scale
When you enter the scaling phase, it is wise to create an LLC in the US. This will enable you to use all the available payment gateways.
It is recommended that you use an expert company to set it up and manage your earnings and tax liability.
Replace product testing with very good product research
Because I can’t order a sample to test my products, I need to do in-depth product research, checking customer feedback on supplier platforms and competitor websites before advertising a product.
I recommend that you offer an exchange or a refund rather than the customer returning the product – something like this:
You can check out our refund policy template for dropshipping here.
Be aware of dollar based advertising and operating costs
South African dropshippers should expect advertising costs, Shopify fees (if you use it), App fees, and other operating expenses to be charged in USD.
These add up because of the weak currency (ZAR – South African rand).
As you can see, dropshipping in South Africa is not without some additional challenges!
As a sustainable sales model, the growth of local dropshipping depends on the entry of larger local manufacturers and suppliers into the dropshipping area, supported by user-friendly technology interfaces for easy store integration.
Some innovative businesses are trying to do good things, and I will be observing them with optimism!
Regarding international dropshipping to South African customers, South Africa is quite far behind the curve regarding shipping, customs, and the postal system, and this model is problematic.
As described, I believe dropshipping from an international supplier to an international customer is currently the best strategy for the South African dropshipper.
So, are you ready to get started? Let’s go!
As a beginner, I followed the steps in these amazing guides and hope you will find them helpful too:
- Dropshipping for Beginners: What Is It & How To Start Today
- Shopify Dropshipping Complete Guide 2021: Create Your Store!
- AliExpress Dropshipping Complete Guide for Beginners (2021)
- How To Find Winning Dropshipping Products
Tells us in the comments about your successes and challenges when dropshipping in South Africa.
We can all learn from each other in this challenging venture and hopefully grow South African dropshipping. Good luck!