New malls open in Ghana as purchasing power rises

Although formal retail operations have continued to expand in recent years, driven in part by Ghana’s emerging middle class, the sector is still dominated by traditional and informal open-air markets, which continue to make up around twothirds of total sales, according to global management consultancy A.T. Kearney.

Spending Is Up

Market research forecasts retail spending to increase from $8bn in 2015 to $11bn by 2019, thanks largely to the growing middle class. After a rebasing exercise, in 2010, Ghana became a low middle-income country based on World Bank definitions in 2011. Gross national income per capita reached $1770 in 2013, according to World Bank figures, with higher rates of disposable income aiding the retail sector, though a shortage of prime retail space has kept rents high, leaving shopping malls predominantly the preserve of higher-end foreign stores and brands.

The lack of dedicated space, combined with the relatively limited competition for mid- and highend retail outlets, has prompted the construction of a number of new shopping centres in the capital. Two new malls opened in 2014, West Hills Mall and Junction Mall, with another facility, One Airport Square, due to open in 2015.

Yet any optimism must be tempered by the current realities on the ground. Recent months have seen retailers grapple with a number of obstacles, including reductions in retail fuel and utility subsidies, currency depreciation and intermittent electricity supplies that have forced owners to use expensive diesel generators.

“Electricity is the biggest issue,” Mahesh Karumbaiah, general manager of iShop, an authorised Apple retailer based in Accra Mall, told OBG. “Three of four businesses in the mall have gone under in the last six months alone because of rising costs and fewer buying customers,” he added.

Unatapped Potential

Retail sales in Ghana have grown 10% a year in recent years, according to A.T. Kearney’s 2014 African Retail Development Index, a study conducted to determine the most attractive sub-Saharan markets for retailers. The country was ranked sixth overall, behind Rwanda, Nigeria, Namibia, Tanzania and Gabon. The index gave Ghana an average of 56.9 out of 100, scoring it highly for, in particular, its low country risk (81) and low market saturation (71). Ghana’s middle class has more disposable income than ever before, with household consumption levels rising rapidly over the last decade, reaching $28.4bn in 2013, compared with $6.2bn in 2003. Real GDP for the fourth quarter of 2014 grew by 4.6% year-on-year, according to the Ghana Statistical Service.

While Ghana is far smaller than nearby Nigeria, which has a population of around 178.5m, there are plenty of opportunities on the ground in what is a relatively untapped retail landscape. Market research forecasts that more than 479,000 households will be in the $10,000-a-year-plus income bracket by the end of 2015, which represents nearly 9% of total households. The main retail opportunities are currently to be found in the capital, Accra, where most of the retail developments are focused and where Ghana’s middle class is largely concentrated.

Shopping Landscape

While Ghanaians continue to rely on informal open-air markets for much of their shopping needs, including groceries – supermarkets accounting for just 1% of sales – local and international brands have been aggressively expanding their footprint. Domestic grocery chains such as Melcom, Koala and Palace Hypermarket are busy building up their outlets. Melcom Group currently owns a chain of 29 retail stores across Ghana, while Koala has two large supermarkets in Accra and Palace Hypermarket also has one location in Accra. These local operators have been joined by several foreign retailers, including South Africa’s Shoprite and Game, which both now have a presence in the country, while fellow South African grocer Pick ‘n’ Pay has said it will open its first store in Ghana in 2016.

The apparel and home goods segments have also seen a number of new arrivals. Although chains such as South Africa’s Woolworths have been present for more than a decade, they are being joined by new outlets such as Foschini Group, a South African retailer focusing on clothing, sports apparel, home ware and jewellery, which announced in August 2014 that it was getting ready to open five outlets in Ghana as it sought to grow its market share outside of its home base.

Attractive Market

“Africa represents new growth and opportunities for many retailers who are finding their traditional markets oversaturated,” Joe Ofori-Atta, director of Woolworths Ghana, told OBG. “And with its political stability Ghana has a strong pull in the region,” he added.

In the past few years international brands such as Swatch, Levi, Nike, Sunglass Hut and Mango have opened stores in the larger shopping centres, including West Hills Mall, Accra Mall and the Junction Mall. For example, in late 2014 Spanish retail brand Mango opened its first store in the country in Accra Mall in partnership with the Azadea Group, which has five different brands in Ghana – Mango, Mango Kids, Payless, Violeta and Sunglass Hut – and owns and runs more than 50 international retail franchises across the Middle East, North Africa, Asia and Europe.

Retail Centers

Until a decade ago there were no malls in Ghana, which meant there was plenty of latent demand when the first such facilities opened their doors. A&C Square and Accra Mall, launched in 2005 and 2008, respectively, boasted almost full occupancy rates before opening, with waiting lists for when space becomes available.

“We were fully occupied before we even opened,” George Adjei-Ampofo, the finance manager at West Hills Mall, told OBG. “The perception of malls in Ghana is growing. At the beginning many people didn’t think that Accra Mall would work, but it did,” he said.

In 2013 Accra had just 93,000 sq metres of formal retail space, according to Broll Property Group, and with a strong demand for available space developers raised their rents to match the demand. Formal retail rent in Ghana rose by around 50% in 2013 year-on-year, reaching between $60 and $65 per square metre. That situation has now begun to change, however. In 2014 the market saw 42,700 sq metres of formal retail space added in Accra alone, with the completion of West Hills Mall and The Junction Shopping Mall.

The $93m West Hills Mall, jointly owned by Delico Property Development, a subsidiary of South Africa’s Atterbury Group and Ghana’s Social Security and National Insurance Trust with a 60/40 split, is 30-minute drive outside of central Accra. Officially opened in November 2014, it currently has 27,700 sq metres of retail space, though once its second phase is completed in 2017, it will reach 39,000 sq metres. According to Adjei-Ampofo, West Hills Mall saw over 1.2m visitors in the first quarter of 2015. “There is a demand and people’s viewpoints are changing, they like the ambiance and comfort of shopping at a mall. We have good foot traffic, but the question is does it translate to people buying? That is the challenge,” he said.

Developed by RMB/Westport from South Africa, the Junction Shopping Centre, located near Accra’s Maritime Academy also opened in 2014 and brings an additional 15,000 sq metres of retail space for a catchment population of 665,000. The mixed-use One Airport Square – a joint venture between Actis and Myma Belo Osagie of Boston Investments, developed by Laurus Development Partners – has an additional 2000 sq metres of retail space and is expected to be open in 2015.

In The Pipeline

Developers still see plenty of potential in the market, and many are keen to expand. “A wide network is key for retailers, particularly in terms of accessing those customers outside of Accra who might not otherwise visit formal retail establishments,” Ramesh Sadhwani, the managing director at Melcom, told OBG.

In June 2014 London-based private equity firm Actis announced it had earmarked over $500m for use in commercial property development in Ghana and Nigeria, the region’s two largest economies, to try to take advantage of opportunities presented by the growing middle class in West Africa. The group said it plans to focus much of its activity on the development of dedicated shopping malls.

Atterbury, the developer of West Hills Mall, is also currently constructing two additional sites, the 14,000-sq-metre Achimota Retail Centre in northern Accra, which is expected to cost around $55m and open at the end of October 2015, and the Kumasi City Mall, a 27,500-sq-metre shopping centre scheduled to be completed in July 2016.

According to the Broll Property Group’s “Broll Report 2014-15”, around 175,300 sq metres of formal retail space is set to be completed within the next nine to 36 months, with developments under way in Accra, Tema, Kumasi and Takoradi. However, the report added, “The economic landscape has changed significantly over the past 6-12 months with both developers and retailers now compelled to critically reassess their business models.”

A Challenging Year

It was a tough 2014 for retailers, affected by, among other things, the depreciation of the cedi, the rise in value-added tax and power-supply issues that have affected most sectors. “While existing malls boast near 100% occupancy, trading conditions remain tough as personal disposal income comes under pressure due to high inflation, additional government taxes, pedestrian economic growth indicators, power outages, erratic water supply and spending cuts imposed by government,” the Broll report said.

The cumulative depreciation of the cedi for 2014 reached 31.2%, according to the Bank of Ghana, which has strongly affected the sector. “The currency situation is a really big problem, and it is proving hard to maintain price stability for imported goods – we need to keep moving our prices higher,” Ben Akutteh, a sales manager at a local branch of discount retailer Game, told OBG. He added that the proportion of imported goods they sell has fallen from 80% a few years ago to 60% today, in large part due to currency depreciation. To date, 2015 has not provided any relief; as of September 2015 the cedi had fallen 20% against the dollar since the beginning of the year.

Consumer Spending

According to West Hills Mall’s Adjei-Ampofo, people are still coming to the mall to window shop, but they are generally only buying essentials. “The government is talking a lot of optimism, but the people are not seeing it, and so they are being careful about what they buy,” he said. According to iShop’s Karumbaiah, the store’s sales dropped 20-30% between January and May 2015. “We are struggling, to be honest,” he said, adding that another issue is delays at the port, which can leave tens of thousands of dollars worth of goods sitting for weeks on end, by which time their dollar cost has already changed. “Tenants are suffering, and I’m not sure they will all survive 2015,” said Adjei-Ampofo, adding that the mall is considering offering rental concessions. “Something has to give, and you don’t want to lose tenants – we may have to give them a lifeline.”

E-Commerce

There is currently little in the way of online shopping in Ghana. Peter Gyateng, general manager of Kingdom Books, told OBG, “E-commerce is not very developed – virtually all of our customers come to our physical locations – but if properly harnessed, it could offer a great deal of potential to Ghanaian consumers.”

Although the country has a number of cashless transactions options – something the Bank of Ghana has encouraged, through the spread of ATMs, point-of-sale terminals and the national e-zwich card programme (see Banking chapter) – e-commerce is still limited by low consumer awareness and the fact that the bulk of online activity is on mobile phones and limited to messaging, social media and news (see Telecoms & IT chapter).

“E-commerce will become a big thing in Ghana if the banks become gateways,” said iShop’s Karumbaiah, adding that iShop is currently experimenting with a trial online shop, though it is still in its early stages. In a measure of the overall contribution e-commerce provides towards GDP, the consultancy McKinsey stated that Ghana had an iGDP of 1.1% in 2014, the lowest of the seven African countries it highlighted in a survey, and well below the average for developed countries’ at 3.7%. Senegal led the pack in Africa with an iGDP of 3.3%.

The situation in Ghana could be slowly changing, however, as companies like Jumia – a Nigerian online retailer, backed by Germany’s Rocket Internet, established in 2012 selling a variety of items including electronics and home appliances – move into the local market. Meanwhile, Zoobashop.com, a Ghanaian-owned online retail store, which sells everything from concert tickets to baby supplies, has been in operation since December 2013.

Outlook

Despite challenges such as currency uncertainty and power issues, there are opportunities to invest in Ghana’s retail sector. The surge in malls offering international brand names to the country’s growing middle classes is likely to modernise the retail landscape, although more traditional markets should retain a significant role.

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The Report: Ghana 2016

Industry & Retail chapter from The Report: Ghana 2016

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