• Tuesday, June 25, 2024
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BusinessDay

Why always Nigeria? Africa’s largest economy struggles to keep retailers

Nigeria’s inflation woes: A perfect storm of internal and external pressures

On Christmas Day 2022, The Game, a chain of retail stores was officially shut down in Nigeria after operating for 17 years. “All stores are now closed,” read a notice on the company’s Nigerian website, in big, bold letterings. This was also confirmed by a visit to one of its outlets in Lekki, an upscale part of Lagos.

The exit added it to a long list of retailers (and other businesses) that have exited Nigeria because of a stifling operating environment and profitability issues. Yet, Nigeria is said to be Africa’s largest economy. It also prides itself as the most populous black nation on earth, with an estimated 220 million population of mostly young people but struggles to be a viable location for businesses to establish and thrive.

“Obviously, everyone gets excited about Nigeria because of its size, but I think they’ve taken an incredible strain with internal problems,” said Michael Mark, CEO of Truworths following its exit from the country in 2016.

A few weeks ago, when word first filtered out that The Game Stores were having clearance sales to clear stock, this reporter visited its Lekki store at the Palms Shopping Mall to see if it was ‘fake news’ or real. Entering the expansive hall that once shone and was filled to the brim with an array of assorted items from electronics to food, it suddenly looked like the scene of a looting spree.

In recent years, Nigeria has been haemorrhaging foreign investors and businesses, not only in the retail space but even multinationals, manufacturers and across several industries

But no, it had not been attacked by rioters or looters. The store’s clearance sales, which went viral on social media ahead of its exit from Nigeria drew many shoppers to it from different parts of Lagos. Even this reporter had visited, planning, on one hand, to be able to report the experience first-hand, while also hoping to finally purchase and own a bicycle, courtesy of the clearance sales. But the discounts did not align enough with the reporter’s budget.

The story started last year, when Massmart Holdings Limited, the South African company reputed to be the second-largest distributor of consumer goods in Africa and owner of The Game Stores brand, announced plans to dispose of a total of 14 Game stores across Nigeria, Ghana, Uganda, Kenya and Tanzania.

The announcement at the time, was coming a few months after retailers like Shoprite and Mr Price were just exiting Nigeria, attributed to a range of reasons including currency volatility and weak consumer demand. Shoprite’s exit was especially a shock to many people in the country as it was the largest retail business in Nigeria, employing several thousands of people yet, it turned out it had been struggling and had to cut its losses and flee.

Exceptionally unfavourable economy

While the recent closure of Game Stores (like some others) was not only in Nigeria, the question comes up as usual when consumer businesses leave Nigeria; why is the largest economy and most populous nation on the African continent struggling to sustain retail and consumer businesses?

“Nigeria has the largest consumer market in Africa, and also a very young population. It is a very attractive market for any business, especially those in retail,” said Uchenna Uzo, a professor at the Lagos Business School where he teaches marketing management, sales and channel management. “But Nigeria is (also) a turbulent environment that has its own dynamics,” he adds.

He further explains that retail prices in Nigeria from last year till now have increased by over 60 percent across board, “and it is not just that prices are increasing but the velocity of increase is faster than the consumer can bear,” he says. This means many people are having to reprioritise on what they spend their monies on and mostly going for the essentials. This, he says, affects retailers because they then have to move out things that are not necessary and re-strategize to focus on more essential products.

“But if everyone is selling essential products, differentiating yourself becomes a problem they have been grappling with,” says Uzo, who also heads the Africa Retail Academy.

The Nigerian consumers, despite living in Africa’s largest economy, are battling shrinking wallets. 63 percent of persons living within Nigeria (133 million people) were found to be multidimensionally poor in a 2022 report by the National Bureau of Statistics (NBS). A few years earlier (in 2018), Nigeria overtook India to become the world’s poverty capital.

Read also: Retail policy seen as critical to Nigeria’s local production

For retailers, some of their woes begin and end with foreign exchange, with of course, a litany of other obstacles in between. Getting dollars or other foreign countries to import goods required by retailers has been increasingly difficult. Local substitutes are not always readily available, and it becomes worse that even after ‘successfully’ doing business in Nigeria, they find it difficult to repatriate proceeds to their home countries.

The challenge of repatriating proceeds of doing business in Nigeria, however, transcends even retail businesses. Many airlines had to suspend services to Nigeria in recent times over it. Other businesses in different industries either continue to suffer in silence or mull their exits, too.

“In very simple terms, Nigeria is antithetical to good, standard business and retail practices. Nigeria is almost business limiting,” says Cheng Fuller, a marketing expert and supply chain consultant based in Lagos.

Fuller goes further to explain that when retailers need to import goods, many of which are not locally available, import costs are so high and it is no longer sound business practice for them.

“There are items in demand but because of either foreign exchange restriction or import prohibition those items cannot come in,” says Muda Yusuf, chief executive officer, Centre for the Promotion of Private Enterprise (CPPE), corroborating Fuller’s perspective.

“If they have to fully comply with our trade policy regime, many things will not be on their shelves, which are things that should normally make a complete store,” Yusuf says. “These businesses are not used to all these ways of doing business. That is why many of them do not last. It is the environment.”

Mitch Slape, CEO of Massmart (owner of Game Stores), had said during the initial announcement of exiting last year that, “The performance and the complexity in running those businesses is something that frankly we needed to address.”

According to Fuller, the Game Stores have been making a loss consistently. “It is a different case if you’re making a loss while you’re building a customer base or towards a breakeven point. But in this case, the Game had already exceeded breakeven points, they were profitable then all of a sudden, downturn,” he says. They had exceeded their threshold for the losses, he says.

Slape had also said the move to shut down the stores generally, will result in an annual profit before interest and tax improvement of R750 million ($50.2 million). Through the disposal of non-core and underperforming assets and store closures, Massmart hoped to sharpen management’s focus and invest in high returning assets and online.

Of the previous losses and the currently projected profit these closures will yield, how much is attributable to Nigeria was not explicitly stated. What is clear though is it was the largest of the markets being shut down.

“At the end of the day, you don’t have the products you want to sell, not making enough money, and not even able to meet the promise you’re giving customers, so why bother continuing the business?” Fuller adds.

Unstable present, uncertain future, and a trend of failures

Usually unspoken, officially, but fraud also plays a role. In 2017, a salesgirl working at a Shoprite store in Lekki was arraigned in court for allegedly stealing N553.9 million. She allegedly perpetrated the act by having her own PoS device, which she gave unsuspecting customers to use in making payments after shopping at the store. Payments according to the charges against her, went to her instead of the company, and all within just one month.

Fuller, who not only consults for retail businesses but has also run one of the country’s largest stores, says incidents of fraud and theft are a big concern for investors and business owners. In one incident, while the owner of a store was abroad during a time of financial difficulty in the local business, staffers started selling the company’s assets piecemeal until they attempted selling an official car to one of the owner’s cousins.

“Hardship and difficulty have ensured staffers these days actively seek out ways to defraud the establishment,” he says. “Nigeria is like a Boeing 747 that is just nose diving at maximum speed.”

In recent years, Nigeria has been haemorrhaging foreign investors and businesses, not only in the retail space but even multinationals, manufacturers and across several industries.

A BusinessDay report had identified some companies that have left Nigeria to include Mr Price, whose CEO, Mark Blair, was quoted by Reuters as saying, “Quite frankly I’m not prepared to invest any further whether it’s an investment in time or in money into a country that is volatile as it is.”

“In the early days, we were making money but now we just came up against too many roadblocks, whether it’s getting the money out, etc,” he said.

For Brunel Services plc the Dutch stock exchange-listed staffing agency, it pulled out of Nigeria because of the “continuing feeling of corruption and bribery,” its chief executive, Jan Arie van Barneveld, was quoted to have said. Added to this were security risks and bureaucracy, among others.

For Truworths International, “The clothing company struggled to get stock into Nigeria and cash out of the country,” CEO Michael Mark was quoted to have said at that time. While Truworths left Nigeria at the time, BusinessDay reported it continued expansion in other African countries like Kenya, Botswana and Ghana.

For Woolworths, “when an investment no longer generates viable returns, difficult decisions have to be made to contain costs,” said Ian Moir, the company’s CEO when the company left.

A few of the others that have left include Spanish national carrier, Iberia Airline over trapped proceeds, Tiger Brand International, Etisalat, InterContinental Hotel Group among others. A report by another newspaper, the Punch, had found that over 50 local companies had shut down within five years.

Neville Hatfield, vice president of Merchandise at Game, in a letter quoted to have been addressed to business partners, had written, “Thank you for your service to Game Nigeria, we are so sorry that we have been unable to continue our operations in your country.”

However, as businesses continue to struggle through Nigeria’s wobbling economy, how many more of these businesses will bite the dust remains to be seen.