• Friday, June 14, 2024
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BusinessDay

Retail consumers face hard times as landlords insist on dollar payments

housing

Hard times await consumers as retailers in the formal segment of the Nigerian real estate sector are compelled to settle their rents in dollars, amid foreign exchange constraints, BusinessDay investigations show.

Landlords and developers of retail space, particularly, malls continue to insist on foreign currency, claiming difficulty and high cost of accessing foreign exchange to stock their stores at the parallel market where the naira exchanges at a spread of between N282 and N350.

The implication is that the high cost of accessing forex and insistence on payment in dollars are being passed on to customers by way of high cost of goods and services.

“When you consider the high cost of overheads, due to high cost of fuel, the only way out is to increase the cost of goods and services to the final consumer,” says an operator in a shopping mall in Apapa.

BusinessDay investigations show that in the past two weeks, the cost of goods in shopping malls all over the country have gone up by between 30 to 40 percent, and in some cases, the goods have disappeared from the shelves.

The average rent for retail space in the first tier markets, such as the Ikeja City Mall, The Palms and Circle Mall in Lagos, and Jabi Lake Mall in Abuja, hovers between $650 and $850 per square metre while in secondary markets such as the Onitsha Mall in Anambra, Owerri Mall in Imo, Delta Mall in Delta, and Ado Bayero Mall in Kano, hovers between $400 and $600 per square metre.

However, some of the landlords explain that their insistence on dollar rents is predicated on the fact that every consideration on mall development, from conception to completion, is valued in dollars and, according to Funke Okubadejo, a director at Actis,”it does not make economic sense to do your development in dollars and charge your rent in naira, more-so with the volatility of the local currency”.

A challenging environment is piling pressure on virtually all businesses in the country and “it is becoming increasingly difficult for the retail industry, involving retailers, developers, and manufacturers, to run their operations due to economic instability and forex restrictions, notes Bolaji Edu, CEO, Broll Nigeria.

Limited access to FX and increase in inflation, which has risen to 15.6 percent, up from 12.8 percent in March, are just a few of the challenges facing the retail industry, leading to many retailers bearing the brunt of rising costs and having to postpone expansion strategies, consider consolidation, or pull out of the country altogether.

“As at February 2015, expectation was high on the growth of the retail industry in this country”, recalls Alvin Nadas, COO, Smartmark Limited, a retail chain that entered Nigerian market with an ambitious plan of opening 100 stores within 12 months.

Two years down the line, Nadas is saying that “retailers in the country are now more concerned with survival strategies, than with investment and expansion”.  The company which started with 33 stores at opening, now has 63 and hopes to increase that number by nine before year end.

Though some of the retailers have demonstrated uncommon resilience in the face of the economic realities in the country, some others have caved in. Truworths, a fashion retailer from South Africa, decided early this year to close their two remaining stores in Enugu and Delta, due to capital controls.

“They join other South African retailers such as Woolworth in deciding that the returns did not outweigh the risks and the challenges faced in the country”, Edu says.

Michael Chu’di Ejekan, an experienced retail investor and former director at Actis, calls for a symbiotic relationship among stakeholders in the retail industry, especially retailers and developers. “There must be a convergence of opinions on how to reduce cost, and to reduce cost of construction, developers must begin to consider new and creative mall designs that are cost-effective”, he advises.

Eddie Mcdonald, CEO, Resilient Africa—developers of Circle Mall in Lekki, Lagos and Owerri Mall in Imo—agrees, noting that there is a future for the industry which, he says, depends on developing smaller malls and following retailers’ demands, especially at the secondary market.

In response to current economic realities, Resilient  Africa, limited their exposure to the market by reducing the size of their retail prospects. Two of their planned projects in Owerri, which opened in February 2016 and Asaba were reduced from 13,000 square metres to 9,000 squares metres each.

CHUKA UROKO