• Thursday, June 13, 2024
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Retail industry woes deepen as consumer firms continue to struggle


Nigeria’s retail and consumer goods manufacturers were already struggling with weak consumer spending before government measures to control coronavirus pandemic closed down swaths of the economy.

During the lockdown, buying and selling activities were disrupted along the value chain as factories worked below capacity, while some stores or outlets shuttered.

There were bottlenecks to buying activities as port restrictions imposed by the government to contain the spread of the virus hindered operators in the industry from taking their goods out of the country and earning dollar revenue; also imported products could not find their way to their destinations.

The border closure and cessation of activities at the nation’s airports exacerbated the already anaemic situation of companies that are already walking on rotten ice.

To validate the misery is the recent data released by the National Bureau of Statistics (NBS) that showed the trade industry contracted by at least 16.59 percent as at the second quarter of the 2020.

The decline in the retail industry is reflective of disruptions to supply chains, weak consumer demand brought about by elevated inflationary pressures and liquidity challenges in the FX market, according to Gbolahan Ologunro, equity research analyst at CSL Stockbrokers Limited.

Analysts are of the view that rising cost of living, spiralling utility bills, and high unemployment rate mean consumer companies will continue to see sales and margin fall, and that it could get worse due to disruption to the buying side of the market brought on by Covid-19 headwinds.

The jobless rate rose to 27.1 percent in Q2, 2020, that compares with 23.10 percent in the third quarter of 2018, which was the last period the NBS released labour-force data.

Inflation rate jumped to 12.85 percent as of July, the highest in 27 months, thanks to border closure and farmers/herders’ disputes.

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Analysis of the half-year financial statement of the largest consumer goods firms showed they saw a 1.28 percent reduction in cumulative sales to N717.19 billion from N726.50 billion.

Similarly, combined net income dipped by 30.32 percent to N38.44 billion as at June 2020, from N55.17 billion, according to data gathered by BusinessDay.

The country’s gross domestic product shrank 6.1 percent in the three months through June from a year earlier, compared with growth of 1.87 percent in the previous quarter, according to the NBS.

The average industry net profit margins fell to 46.68 percent as at June 2020, from 59.37 percent the previous year; what this means is that many consumer companies are struggling to turn each naira invested in sales into higher profit.

Unilever Nigeria plc and International Breweries recorded losses, but the Flour Millers bucked the trend as the border closure imposed by the government to curb importation and boost local production forced consumers to patronise their products.

Analysts at United Capital in a recent report say they are more bullish on stocks of Flour Mills and Dangote Sugar due to the nature of their product portfolios in essential items.

However, they expect earnings for the brewers to remain pressured or depressed due to continued restriction on social gathering and weekend parties.

“Looking beyond the third quarter 2020, we have a moderate outlook for topline performance across the sector,” said analysts at United Capital.

“We estimate a moderate growth in demand for essential and non-essential items. However, we expect cost pressures to remain in H2-2020, mildly cushioned by the impact of low-interest rates as well as administrative charges amid the lay-offs of some non-essential workers earlier in the year,” the analysts said.