Hard sell: Traditional markets are slowly giving way to modern shops

The foreigners are here, and they appear willing to stay. With the Nigerian press reporting in August 2012 that a record $1.3bn in foreign investment had come into the retail sector over the preceding two years, outsiders are playing an ever greater part in an industry that – according to international consultancy Accenture – accounts for 19% of Nigeria’s GDP. Foreign investment in this area of the economy makes sense. Even if more than half of Nigerians are living at or below poverty level, in a country of 164.8m, that still leaves a large market that is not. Indeed, according to a 2011 study by emerging market investment bank Renaissance Capital, around 23% of the population can be classified as middle class.

COMING FROM THE SOUTH: A prime example of foreign investment in the sector is the South African supermarket champion Shoprite, Africa’s largest retailer. It was in from the start at Nigeria’s first international-standard mall – The Palms Shopping Centre in the Lagos district of Lekki – with a 3500-sq-metre outlet that opened in 2005. As of August 2012 it had five outlets, with three 4500-sq-metre facilities opening within the last year: one at the Polo Park Mall in Enugu, a new flagship at Lagos’ Ikeja City Mall, and in mid-2012 its first supermarket at the newly opened Grand Towers Mall in the capital, Abuja. Shoprite has expansion plans, moreover. In late August 2012, announcing results in Johannesburg, the company indicated that it intended to invest $205m in property development in Nigeria, raising its store numbers to 13 by mid-2013. In the longer term, it is still more ambitious: Whitey Basson, the CEO of Shoprite, has mentioned developing a total of 700 outlets in Nigeria in the future. Shoprite is not the only South African on the scene. Fashion, beauty and homewares retailer Woolworths opened two outlets in the early months of 2012 at The Palms and the Ikeja City Mall. It is working in partnership with local conglomerate Chellarams, aiming to have 30 outlets nationwide. Then, via two outlets of its Game chain – a fellow anchor tenant of Shoprite’s at The Palms – there is Massmart, also South African. Or partly so, anyway: in late 2010 51% of Massmart was acquired by the US-based international giant Walmart. Though no timetable has been given, it has been indicated that Massmart wants to raise its number of units in Nigeria from two to 20.

AND FROM THE NORTH: The South Africans are not alone. In the clothing arena, French lingerie and swimwear firm Etam opened an outlet at The Palms in April 2011, while Spain’s Zara set up shop at Lagos’ Silverbird Galleria in February 2012. Its compatriot Mango has been in Lagos since 2009 (operating via a franchise), expanding to Abuja in September 2011.

In the supermarket realm, the Europeans are still awaited, with one notable exception. Netherlands-based giant Spar entered the Nigerian market with a 2800-sq-metre outlet in Lagos in 2010, involving a greenfield project with the local Artee Group, owners of the Park’n’Shop chain of department stores. Another Spar outlet opened in Ceddi Plaza in Abuja, and two malls with Spar stores are due to launch in the first half of 2013: the Artee Mall in Port Harcourt and the Gateway Mall in Ogun.

BUY LOCAL: Artee is not the only domestic firm of note. A variety of local players are consolidating and expanding their supermarket chains. Lagos’ Goodies Superstores, for instance, has outlets in Apapa, Ikoyi and Lagos Island. And Addide, also active only in the Lagos area, has 14 supermarkets, billing itself as “your low-price neighbourhood store”.

As a walk around a mall will show, the locals are thriving there too. One example is the HealthPlus chain of pharmacies, which deals in prescription, over-the-counter and herbal medicines as well as medical appliances and personal care products. Founded in 1999 by Olubukonola George, HealthPlus has grown from one small pharmacy to no less than 15 as of mid-2012, with George rolling her network out in malls and two airport locations. The retail company has also succeeded with the beauty and grooming chain CasaBella. Established in 2010, the chain boasts four outlets to date.

Another Nigerian entrepreneur is Dorothy Boyd, who runs the Sports World fitness products chain and Diva House of Accessories, which sells costume jewellery. With a dozen retail outlets in early 2012, Boyd had expanded to 17 by late summer. Yet one more is the Twice as Nice fashion chain, which expanded from a single, hotel-based outlet in 2002 to 22 shops in nine of Nigeria’s states as well as a unit in the Ghanaian capital of Accra. The retailer has plans for a new outlet in South Africa before end-2012.

SCENES FROM A MALL: Shopping centres are useful for both foreigner and local investors. Indeed, malls ensure visibility and provide good footfall. In December 2011 visitors to The Palms Shopping Centre exceeded 643,000, for instance. For consumers, they provide a pleasant shopping experience, even if it is only window shopping. And they can reduce stress in all sorts of ways: one mother, interviewed by a Nigerian daily, observed that visiting a mall, rather than one of the country’s bustling open air markets, meant that she did not have to worry about the safety of her children while shopping. For foreign chains and high-end local companies, they provide ready-made international-standard space.

But they are still scarce, in part due to bureaucracy and a shortage of long-term finance options. In 2011, when South Africa’s Johannesburg had 69 malls, the much more populous Lagos was waiting for its second international-standard mall, at Ikeja. Abuja has five malls, but none of them is really up to international retailers’ standards, except the Grand Towers Abuja Mall, which opened in June 2012, and even that is a relatively small at 9500 sq metres. The UK-Nigerian joint venture (JV) Persianas Group, owner of The Palms in Lagos, also has Polo Park Mall in Enugu State and is developing another two shopping centres, in Ilorin and Ibadan. The JV has recently been boosted by $124m worth of finance from International Finance Corporation, part of the World Bank Group. Port Harcourt has two malls due to open in 2013, while another is expected the same year in Kano.

INFORMAL APPROACH: If Shoprite aspires to 700 outlets and has five, there is clearly some way to go. That is true of the modern retailing sector more generally. Indeed, Nigerian shopping is still heavily dominated by the world of neighbourhood stores, street vendors and open markets. That will change, but gradually, for several reasons. One is taste: even of those who can afford to shop in malls or supermarkets, many prefer more traditional ways. Another is a tendency to shop frequently rather than stock up. And deficient public transport means that malls are not very accessible to those without cars.

Yet another edge may be cost-related, as pointed out to the local Business Day in April 2012 by sector analyst Cedric Bra. Using informal labour, often selling goods bought illegally, and frequently operating unregistered and therefore untaxed, smaller shops can keep costs low. Contrast the modern retailers, which have high fixed costs and visibility, having to obey the rules in respect of tax and sourcing. Taken together, noted Bra, this means that modern grocery retailers’ prices are on average 10-20% higher than those found in unregistered outlets.

That may be an overstatement of the situation. Anecdotal evidence from the press suggests that informal sector prices can be higher as well as lower than those of the formal sector. There is pressure from some local authorities – notably in Lagos, with its modernist “mega-city” aspirations – to crack down on the informal sector while bringing traditional forms of sale into more modern, custom-built markets. Shoprite and Game, too, are vigorous, frequent and deep-cutting in their special offers. But it is not the same game as in Europe, or even in South Africa.

KEY CHALLENGES: The challenges to development of formal retail chains are numerous. Particularly in urban areas, where retailers are in fierce competition with developers of residential and commercial plots, land prices are an issue, and returns on investments also take longer than high-end apartments or office blocks. An equally pressing challenge is infrastructure. Underdeveloped and congested roads, and unreliable electricity are both problems. Retail chains are dependent on running generators at significantly cost. A third challenge is the supply chain and for local sourcing. Formal retail chains, like Shoprite and Spar, define their edge by offering domestically supplied consumer-goods for local preferences. Besides a handful of locally-based fast-moving consumer goods producers – including Nestle, Unilever, P&G and Cadbury – most products on the shelves of Nigerian retailers are imported. Locally sourced fresh items, such as fruits and vegetables, often spoil by the time they arrive at retail outlets due to the congested and underdeveloped national road network.

OUTLOOK: Hard-fought though it may be, however, steady progress for the foreigners and local exponents of modern retailing is expected. It is a market in which the middle class is growing in spending power. While remaining price-sensitive for the foreseeable future, consumers will also lay increasing emphasis on convenience, quality and guaranteed reliability. For those reasons, it is a market where modern retailers have every reason to continue investing. As malls multiply, they will have more locations where they can deploy those investments to the best effect. Similarly, as outlets expand, critical mass will be gained and economies of scale in procurement and logistics will be brought to bear on this price-sensitive market.

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The Report: Nigeria 2012

Industry & Retail chapter from The Report: Nigeria 2012

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