BusinessDay
Nigeria's leading finance and market intelligence news report.

Local investors seize opportunities at secondary locations to develop retail spaces

Local investors are seizing opportunities at secondary market locations in the south-south, south-east, south-west and north-west as foreign investors re-evaluate existing business portfolios to determine profitability.

According to 2019 second half Nigerian retail report by Broll Nigeria, a commercial property services company, some of the measures taken by local landlords in secondary market locations are to quote retail rents in naira as opposed to core real estate markets where rents are quoted in dollars per square metre. Naira rent quotes cover over 90 percent of line shops in secondary markets.

Local operators of retail spaces have dominated secondary markets “as international retailers continue to remain reluctant about rolling out operations in the country on their own balance sheet,” the report stated.

Nigeria’s gross domestic product (GDP) has remained weak since its exit from recession in the second quarter of 2017 and its recovery is failing to drive a strong rebound in the overall economic growth which is making foreign retailers to consider either downsizing operations or pulling out of the country.

Most of the foreign retailers are not sure of the country because of its uncertain economy. There has not really been a serious recovery since recession and purchasing power has still not improved which is a major driver for the retail market. So many things have not been really working well for them,” an anonymous researcher said.

Before the country’s entrance into recession in 2016, many foreign retailers were setting up businesses in Nigeria to gain a firm foothold in a marketplace where most consumers are brand loyal and value good services.

According to 2013 article by Mckinsey & Company, an American management consulting firm, the next chapter of emerging middle-class growth will be in the retail sector, fuelled by a new generation of Nigerian consumers, wholesale and retail sales are already the third-largest contributors to Nigeria’s GDP, contributing 16 percent to the total, albeit mostly through informal markets.

Apart from the low occupancy rate by foreign retailers, demand for its products is slowing as they are now perceived as more expensive to purchase by consumers, discouraging local merchants’ interest to stock them.

“This is obvious in the sale performance of many of these malls. And with the local retailers rebranding into a sort of mini-malls or supermarkets, competition is ramped up. I think it’s inevitable for many of the international retailers to downsize operations particularly in states where patronage is weak,” Ayorinde Akinloye, a consumer goods analyst at Lagos-based CSL Stockbrokers said.

Data from the National Bureau of Statistics on Gross Domestic Product (GDP) by Income and Expenditure approach at 2010 purchaser’s values show that consumption expenditure of households have been declining at varying pace since it rose by 1.5 per cent in 2015. Also, per capita income in Nigeria has declined to $2,049 in 2018 from $3,268 in 2014, according to the International Monetary Fund (IMF).

Last year, Nigeria overtook India as the country with the largest number of people living in extreme poverty, thereby becoming the world capital of poverty, according to the Brookings Institute. This year, the number has risen to 91.6 million from 87 million in June 2018. Every minute, six Nigerians enter the group of extremely poor people, according to the World Poverty Clock.

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