Nigeria’s second-generation formal retailers may soon find themselves travelling down the ill-fated path of first-generation retailers from Leventis to Kingsway, who took off in the face of weak consumer purchasing power and supply chain disruptions.
Established between 1932 and 1948, UTC, Leventis and Kingsway Stores all vied for the wallets of Nigerian consumers with quality items. They enjoyed so many sales that they rapidly expanded across the country and became among the largest retailers not only within Nigeria but in Africa.
All that was up until the mid-1980s when things took a dramatic turn.
Like Kingsway, Leventis Stores, established in 1937, was another popular name and brand many Nigerians born before and shortly after the country’s independence in 1960 remember with nostalgia.
Leventis became one of the biggest of its kind in West Africa by 1978.
There was also UTC Nigeria, a subsidiary of Union Trading Company in Switzerland, which was established in 1932.
On the shelves of these three super retailers were a mixture of general consumer goods, quality fabrics and items that were both appealing and affordable to many Nigerians.
It all changed in the mid-1980s when Nigeria’s economy tanked due to falling oil prices and curious government policies.
Read Also: Shoprite’s exit and lessons about Nigerian consumers
The economy went from 4.2 percent growth in 1980 to sharp contractions in the next four years that followed a painful squeeze from Nigeria’s fast rising middle class who heavily patronised UAC’s Kingsway and the others.
The economy contracted 13 percent in 1981, 6.82 percent in 1982, 10.9 percent in 1983 and 1.1 percent in 1984, according to World Bank data.
As the economy reeled, so did the purchasing power of Nigerians, and that led to declining sales for Kingsway, Leventis and UTC.
The declining purchasing power of consumers was not the only thing Kingsway and the other first-generation retailers had to contend with, there was also the problem of import restrictions, which disrupted their supply chains and left their shelves empty.
Kingsway, which had about 13 modern department stores and supermarkets in major cities of the country and employed around 1,000 people at the time, abandoned the business. The same fate befell Leventis and UTC.
In a rehash of the mid-1980s, Nigeria’s second-generation retailers, which would spring up much after the first-generation retailers disappeared, are faced with identical challenges.
The economy has not grown in per capita terms since 2015, and has suffered two recessions in five years.
The oil price crash of 2014 precipitated a deep recession in Nigeria in 2015/2016. Inflation spiked, manufacturing slowed as foreign exchange dried up, companies battled to repatriate profits and dividends, jobs were lost and consumers tightened their belts.
Not long after Nigeria exited the recession, the COVID-19 pandemic swept across the world and drove the oil price to record lows, with attendant problems for Nigeria and other oil producers.
The rollercoaster ride has been tough for companies battling with dwindling profits.
One in two Nigerians in the labour market are either unemployed or underemployed. Inflation is about double the central bank’s preferred upper limit of 9 percent with food prices accelerating at a record pace. Amid the economic hardship, Nigerians are growing poorer. Some 82 million Nigerians live on less than N400 a day, according to data by the Brookings Institute – that is the population of Spain and Canada combined.
The government has also pushed through policies looking to stifle imports under the wrong notion that Nigeria, which imports a meagre 12 percent of its GDP, is import-dependent. In comparison, African peer, South Africa, imports 30 percent of its GDP, almost three times the size of Nigeria’s.
The falling purchasing power of Nigerians and the government’s clampdown on imports are adversely affecting the second-generation retailers. Some of them fear they are drifting towards the fate of their predecessors.
Shoprite, a South African-owned retailer, put the finishing touches to an exit from Nigeria this year after 15 years. The tough battle to establish a retail presence in one of Africa’s most challenging markets set the tone for Shoprite’s 15-year journey in Nigeria. The business environment has never been easy, but Shoprite adapted and made good money for a long time despite the challenges.
Of all the South African retailers that entered African markets, Shoprite was the one most expected to last the distance. It fine-tuned its country models along the way, shortened supply chains where possible, and set up centralised warehousing, which enabled it to manage the long port delays in Lagos, for example.
“Shoprite’s exit sends a strong signal that Nigeria is a tough place to do business and the reasons for the exit are not unique to them, other retailers are also being stifled and may soon go the way of the first-generation retailers,” a source who has been a part of conversations in the retail sector told BusinessDay.
“The authorities need to take this matter seriously because the economy will suffer more than it did in the 1980s, if the second-generation retailers went the way of the first,” the source said.
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