The planned exit of Shoprite, arguably, Africa’s biggest grocery retailer, from Nigeria has negative implications for the country’s already struggling $105 billion retail industry and also space suppliers, experts have said.
READ ALSO: Here’s why Shoprite is leaving Nigeria after 15 years
The South African retail chain has planned to leave Nigeria, citing COVID-19 pandemic and the group’s re-evaluation of its operating model in Nigeria— Africa’s thriving market and the continent’s largest economy.
The coming of Shoprite is almost synonymous with the growth of retail market in Nigeria which, at a time, witnessed what could easily be described as a revolution with some foreign investors, at the time, planning to invest $500 million to finance the development of six retail malls in five major cities.
Shoprite is not only strategic an anchor tenant in most of the trail outlets in Nigeria, but also a trade booster to other retailers in a given mall. This is why Cheng Fuller, a retail expert, reasons that apart from the large number of jobs that will be lost, other stores within the same proximity of the store (Shoprite) could suffer further.
“When Shoprite came in, they provided a source of tourism or relaxation called shoppers’ tourism. 60 percent of people who went to Shoprite did not just go for their price, but for the tourism and from there, they will be tempted to do impulse buying. And now in this pandemic, their major business model which is large crowds has back up against them,” Fuller said.
He explained that other stores close to Shoprite would suffer more because Shoprite is the anchor tenant for the stores; now that they are leaving, those stores will die a natural death. He added that there is also the problem of unemployment as Shoprite employs about 10,000-13,000 people across the country.
The exit of Shoprite would mean that developers or space suppliers would suffer in many ways. Apart from increased vacancy rate in the retail market which averaged 30 percent across cities by the last quarter of 2019, investment in mall development which is already low, will drop further.
Interestingly, many of the retail mall or space suppliers are South African developers and investors. Most prominent among these investors is RMB Westport, a joint venture between Rand Merchant Bank (RMB) and Westport Property Group—a highly skilled real estate investment management company which was reported to be funding about 51 percent of Osapa Mall and 50.5 percent of 30,124 square metre Royal Gardens Mall.
Another investor is Resilient Africa, a South African partnership between Resilient Properties, Shoprite and Standard Bank, which developed four of its choice malls in Delta, Benin city, Owerri and Asaba.
While these investors would have a lot of empty spaces to contend with, letting agents and facilities managers would also have a bite of the bitter pie. Broll Property Services, also a South African firm, which has been providing both letting and facilities management services to these malls, will suffer some shock in its bottomline.
On Monday, Shoprite announced that it would discontinue its operations in Nigeria, 15 years after the its first store was opened in Lagos in December 2005. The South African company with more than 2,934 outlets in 15 countries across Africa said a formal process to consider the potential sale of all or a majority stake in its supermarkets in Nigeria has been initiated.
The retail chain is not the only foreign retailer that plans to exit, 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.
Before now, analysts had been upbeat with optimism on foreign interest in the Nigerian market. “There has been a strong interest from notable international brands (not just the regular South Africa ones) who are eager to come to the Nigerian market in recent time and this enhances the take-off of these malls when delivered”, Chu’di Ejekam, a former director at Actis, told BusinessDay.
But the market has seen a tumble which, according to Ayorinde Akinloye, a consumer analyst at CSL Stockbrokers, “is in line with the expectation that foreign retailers will begin to exit the market considering the distortion in economic activities, continued devaluation of the Naira and the weaker consumer market.”
On his part, Gbolahan Ologunro, a research analyst at Lagos-based CSL Stockbrokers noted that Shoprite has, overtime, been highlighted as one of the key areas for investments in the country and now that they are leaving, it gives the industry a blurry picture of the tough operating environment in the country.
“Over the years, I think they have not seen policies that will unlock those potentials. The middle class is shrinking and they are the ones that shop the more on a regular basis,” Ologunro further said.
Sales in the Nigerian supermarkets have been declining since last year while the South African unit has managed to grow sales against the odds. It saw sales rise by 8.7 percent, but in the Nigerian stores, sales declined by 6.3 percent in 2020. Its unique calendar means the year 2020 ended in June.
While sales in Nigeria contracted by 5.9 percent and 6.7 percent in the first and second half of the year respectively, sales in South Africa grew by 9.8 percent and 7.5 percent in the first and second half of the year respectively.
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 Trade sector, which comprises wholesale and retail trade, remained in recession for four straight years over myriad challenges ranging from unpredictable government policies to weak consumer demand.
According to data released by the National Bureau of Statistics (NBS), the sector contracted by -0.38 percent in 2019, compared with -0.63 percent, -1.05 percent and -0.24 percent in 2018, 2017 and 2016 respectively. Also, Nigeria’s per capita income declined to $2,049 in 2018 from $3,268 in 2014, according to the International Monetary Fund (IMF).
