South African online retailer RunwaySale scores R100 million investment

RunwaySale, a local online fashion that began in an apartment more than eight years ago, has received a R100m investment from Spear Capital, a global private equity firm.

This is the first “real investment” since its launch, says Karl Hammerschmidt, who started the company with his then girlfriend now wife, Elmien Hammerschmidt.

RunwaySale sells designer and premium labels including Guess, Pringle and Polo online at cheaper prices than in-store.

Hammerschmidt believes that even in the subdued SA economy his company can grow. With online retail forming such small percentage of clothing sales, the company has to steal only a  little market share from in-store to expand.

Hammerschmidt  says he doesn’t sell the latest fashion.

“We are a few months behind the rest of the market, but it doesn’t seem to matter. Consumers prefer value over the absolute latest trends.”

Spear Capital's Bryan Turner says the firm only invests in a business if they are pleased with businesses management team.  “We believe RunwaySale demonstrates expertise in the three areas that are key to success in e-commerce: in-house technology, logistics and digital marketing.”

The investment will aim at improving consumers' online shopping experience using machine learning. Hammerschmidt wants to ensure customers have a personalised experience and see the clothes and brands they want to buy when they log on to the site or app.

The growth in online sales  in South Africa has spiked during the coronavirus pandemic as people stay at home. Hammerschmidt says sales in May this year were better than the same month in 2019.

According to tech analyst Arthur Goldstuck, the coronavirus pandemic is the “big moment” in South Africa for e-commerce.  

“Through the pandemic, many in the middle class have discovered online grocery retail and are now far more comfortable buying other products online.”

There was initially “huge resistance to clothing being bought online”, says Goldstuck.

“The big difference between the US and South Africa is that the USA has a mail order culture.” People buy clothes through catalogues and have them posted, but this has never happened in South Africa, he says.

Mainstream clothing retailers often treat online sales as an add-on or afterthought, and few have an effective clothing return mechanisms if the item bought doesn't fit or look good.

He says returning an online order by having to visit a store is “quite an antiquated approach”.

This gives online clothing retailers a big advantage.

RunwaySale uses reputable brands with good sizing and this enabled them to keep returns to less than 10% of all orders, says Hammerschmidt.

As part of the investment, Christophe Gaigneux, who was online CEO for the European division of  US fashion retailer TJ Maxx, has been appointed to the board.

“The potential for e-commerce to contribute meaningfully to the local economy has never been greater and RunwaySale will be key to meeting the demand we know is building up in consumers across all demographics in SA,” says Gaigneux.