Five ways to halt exit of foreign retailers from Nigeria
Top South African retailers such as Mr Price and Shoprite have exited Nigeria, and now Massmart plans to leave its Games Stores. Experts say foreign retailers need to re-examine their approach to the Nigerian retail landscape in order to succeed.
A better approach, experts note, is to understand the regulatory landscape in Nigeria, focusing less on assets of heavy retail formats and combining e-commerce with brick and mortar stores.
They also recommend building a supply chain network with good local content and sourcing dollars from their head office as practical measures foreign retailers can leverage to navigate Nigeria’s retail sector.
While their decision to exit Nigeria may not come as a surprise to many as macroeconomic volatility, rapid naira depreciation and weak purchasing power hurt the retail market, retaining foreign retailers is a way to grow foreign investments, which translate to economic growth and development.
Declining household incomes and low sales have also made it difficult to operate a successful retail business in a country where spending on food accounts for a significant chunk of household income.
This is why experts say retailers, especially foreign ones, should understand how to penetrate Nigeria’s retail landscape.
Uchenna Uzo, consumer/retail expert and faculty director, Lagos Business School, advises that it is very important to research the consumer culture and regulatory space and tweak operations to match them.
“They should also understand the regulatory landscape of retail by knowing who the key regulators are, what their demands are, what gets them offended and what gets them on your side,” Uzo says.
Uzo further advises, “Foreign retailers should also focus less on asset heavy retail format and focus more on the experienced pricing side, combining e-commerce with brick and mortar, they would not have suffered.”
This is why the retail expert says that having a good supply chain network and understanding the dynamics of supply chain management help too.
Another challenge faced by foreign retailers is dealing with inadequate foreign exchange.
Read also: Attracting and managing retail investors
Ayorinde Akinloye, a consumer analyst at United Capital plc, advises foreign retailers to rely on their group head to source foreign exchange.
“Considering the fact that they are foreign, they have to look at sourcing dollars from wherever their head office is, like the way some fast-moving consumer goods are doing in Nigeria already.
“This is better than relying on sources from the Nigerian market because it will frustrate their business operations,” Akinloye states.
Nigeria’s retail sector was once a formidable consumer market due to a fast-growing middle class, rising consumer income and urbanisation which made it an attractive retail investment destination for local and foreign investors.
Between 2008 and 2020, there was a projected $40 billion growth opportunity in food and consumer goods in Nigeria, the highest of any African nation, according to a 2013 article by Mckinsey & Company.
However, this potential has not been realised as the sector has been challenged by high inflation rate, unemployment and rising poverty levels.
“The Nigerian retail space has almost crippled to a halt. As a result of that the economic environment has become business prohibitive,” notes Cheng Fuller, a retail expert.
Fuller advises foreign retailers to cut down on their range and carry only the basic necessities while focusing on cost reduction.
A 2020 Global Retail Development Index shows that since 2015, total retail sales have dropped to $105 billion in 2019 from $109 billion in 2017, $125 billion in 2016, and $135 billion in 2015.
Recent data from Euromonitor International, the world’s leading independent provider of strategic market research, show that for the first time in five years, Nigeria’s modern retail trade market contracted marginally by 5.4 percent to $25.2 billion in 2020 from $26.7 billion in 2019.
Analysts say there is so much uncertainty in the market and for business operators to make it work they need to fully entrench themselves in this market so that when things evolve, they are able to respond.
Yet some new retailers are scouring for potential in Nigeria’s retail market. Burger King, an American multinational hamburger fast-food chain, is billed to start operations by the end of the year.
The company is expected to employ about 6,000 people (direct and indirect) in the country between 2021 and 2026, other things being equal.