Shoprite, Spar, others face hard times as mall traffic dries up
…COVID-19, poor economy hit prospects
Market conditions in the Nigerian retail industry are heading from bad to worse as retailers such as Shoprite, Spar and Mart grapple with low patronage following the adverse impact of COVID-19 pandemic on household incomes.
BusinessDay survey of some retail stores in Lagos shows that apart from weak purchasing power faced by the stores before the pandemic, retail stores are now largely suffering from weaker consumer purchases following job losses and wage cuts induced by the pandemic.
Tunde Akinwunmi, an official at Spar, noted that the atmosphere at the store now is not encouraging as the firm is barely making enough profit, saying that it survives by the grace of God.
“The poor patronage and sales caused the COVID-19 even reduced staff numbers from 70-75 to 50. And despite the fact that our prices are cheaper than other stores, customers are still complaining that they are expensive,” Akinwunmi said.
He further said that the electronics section of the store, which used to make N10 million in sales in just one weekend alone, now barely makes N3 million.
A retailer or retail store is a business enterprise whose primary source of selling comes from retail. Retailing includes all the activities involved in the selling of goods or services directly to the final consumer for personal, non-business use. Types of retail stores are speciality stores, department stores, supermarkets, convenience stores, drug stores etc.
“If you look at our store now, there is hardly any foot traffic. Before consumers would spend like N50, 000 to shop, but that amount has reduced to N20,000 now and incomes are mostly spent on food items. We are not making enough sales and we had to cut down on our staff,” Kudirat Abubakar, a manager at Mart Supermarket, said
Reliable sources say that Hubmart Supermarket has been facing similar challenges as it is also in survival mode.
“The impact of the COVID has made people go into a survival mode. They have super prioritised their wallet to spend on hyper essentials. Do not forget that about 30 percent of retailers’ sales are typically all discretionary items. And in this period, most consumers have moved from discretionary purchases to hyper essentials. Sales have really gone bad and in light of this, it is difficult to expect retailers to fare better or as they did before the COVID,” Cheng Fuller, a retail expert, said.
Before the pandemic, the retail and consumer goods sector had been facing a myriad of challenges from fragile economic growth to unfavourable protectionist policies of government such as border closure, foreign exchange restriction for food imports and 7.5 increments in Value Added Tax. The impact of the policies forced retailers and manufacturers to increase prices amid weak purchasing power of consumers.
The increase in prices also forced consumers to seek cheaper alternatives in the face of stubborn inflation that has lowered their purchasing power, casting a pall over the immediate outlook for producers of premium products.
“People are now buying more affordable and accessible brands than before. People still go to the stores, but they are now more conscious of the prices that they are buying because prices in the supermarkets have increased,” Amanda Etuk, general manager, Zippy Logistics, a logistics and supply chain firm said.
Around 82.9 million Nigerians are extremely poor, constituting 40.1 percent of the total population with real per capita expenditures below N137, 430 in 2019, according to the National Bureau of Statistics (NBS)’s Poverty and Inequality report in May 2020. The World Bank predicted that there would be 95.7 million Nigerians living below the poverty line by 2022.
The NBS said food inflation was printed at 16.7 percent in September 2020, the highest in almost three years.
And despite the country’s exit from recession in the second quarter of 2017, the fundamentals of the consumer goods and retail industry which are job creation, income and employment have been very weak. The economy shrank by 6 percent in the second quarter of 2020, with unemployment standing at 27.1 percent.
Earlier in the year, Shoprite, a top retailer, had announced that it would discontinue its operations in Nigeria as sales in the Nigerian supermarkets had been declining since last year, while the South African unit managed to grow sales against the odds.
ShopRite is not the only foreign retailer re-thinking strategies. Mr. Price, also a major South African clothing retailer, announced their exit from Nigeria, citing challenges like supply-chain disruptions and challenges in getting funds out of the country as reasons it has struggled to operate in the country.
The trade sector, Nigeria’s second-biggest sector by output contribution which comprises wholesale and retail trade, has been on a negative territory since the second quarter of 2019 and experts warn that if policies are not implemented to reverse its current standing, the sector might be heading towards an economic depression.
“Going forward, the trigger for a recovery in consumer spending, which would trickle into retail stores sales, can only be driven by the recovery in income levels which is a function of the direction of the aggregate economy and policies of economic managers,” Ayorinde Akinloye, consumer analyst at Lagos-based CSL Stockbrokers, advised.
Since 2016, the country’s global ranking in retail development has been dropping consecutively. According to data from the 2019 Global Retail Development Index (GRDI) by A. T. Kearney, a global management consulting firm, Nigeria dropped to 30th position out of 30 countries from 27th and 19th position in 2017 and 2016 ranking, respectively.
Also, the country’s total national sales from the sector dropped to $105 billion in 2019 from $109 billion and $125 billion in 2017 and 2016, respectively.
“The best bet for Buhari is to re-open the border to allow free flow of goods and reduce inflation, which erodes income faster. By shutting down the border with Benin and Niger, you are deepening poverty and inflation, and enriching few. Then again, why have we not addressed the issue of multiple foreign exchange markets and foreign exchange supply?” one analyst asked.