Michelle Lehrer. Picture: Supplied
Michelle Lehrer. Picture: Supplied

Traditional bricks-and-mortar retail is under strain, and a new entrant — the members-only online shopping business Allsale Club, which launched this month, is set to bring further pain to a sector that appears ripe for disruption. We asked founder Michelle Lehrer how they plan to undercut the competition.

We have partnered with wholesale suppliers around the world that we’ve had relationships with.

Are you actually just bringing in grey goods?

They are all parallel imports. What we’re doing is bringing them to South Africans at wholesale margins, if not lower, based on the membership model. It’s sort of like the transition from DStv to Netflix.

We’re saying: let us do that for not just fashion, but household goods. If we can source around the world, bring it in parallel, so that we are able to set our own prices, and we can circumvent any local pricing parameters that manufacturers, distributors or the brands would put on us.

Is the membership model a global phenomenon?

It’s definitely new to SA in terms of retail and e-commerce, but it’s becoming more prevalent if you think about Netflix or Amazon or even UCook. It’s not new abroad, if you think of the Costco model (one of the top three most successful retailers globally). They charge membership fees and then customers know they’re getting all those goods at a set margin. So that’s what we want to do in SA. If we have membership income, it works to deflate margins over time. I think that’s unique in a business environment: encourage management to bring margins down. We believe in a country with huge import duties and a lot of other costs, that is the way to do it.

Presumably it only works if you’ve got critical mass?

Absolutely, and we’ve spent 18 months modelling and planning out what is our break-even and what is the number of members we need.

In many respects members would earn back that monthly fee in one transaction, and we’ll be able to show the value of that savings journey.

Do you expect any legal wrangles between yourselves and other players in a traditional retail distribution chain?

We’re definitely disrupting the status quo by circumventing all the local supply channels. So will we upset local distributors and brands? Yes. Does that mean we’re giving South Africans better prices? Yes. Everything we’re doing is legal, we’re 100% parallel imports. We believe that law exists in SA in order to enable competition As an economist by education, to me that’s sort of the purest form of the free market.

Did you look at SA and think ‘This market is ripe for disruption’?

E-commerce is only 2% of sales but it’s growing and we see the trend continuing to grow. We spent a lot of time studying pricing arbitrage around the world and we did an online study 18 months ago where we surveyed 70,000 people on prestige pricing locally versus internationally.

Then we looked at the statistics and at what South Africans are paying — and for legitimate reasons, like import duties.

We put our heads together to say there has to be a way to bring South Africans the prices that everybody else in the world is paying for those goods. And for us the answer was the membership model.

How did you and co-founder Justin Drennan come together to set this business up?

I worked for the House of Busby bringing in international brands. In doing that I saw first-hand what happens to retail prices when stuff comes to SA — the chain between brands needing a cut, the local partners needing a cut. In that work I met Justin, who at the time was starting Superbalist.

Will you use the SA Post Office?

We’re working with courier companies and freight forwarders to bring the goods into the country and then we’re working exclusively with SA private couriers for the last-mile distribution. We aren’t working with the post office. Seeing what’s happened in other countries, there’s an incredible opportunity for growth if you take the e-commerce challenge on for an agency like the post office, if you see what happened in the UK. The postal service there has done incredibly unique stuff, from working with tech companies and developing infrastructure for e-commerce.

Do you think local retailers have to change the way they do business?

Personally I think everyone has to be really open-minded when it comes to global e-commerce.

I think bricks-and-mortar retail in SA is in a better position than abroad because of the relevance of the shopping centre as a destination.