Category: Shopping

Though on the upswing, with prospects for bountiful returns on investment, the retail services segment of the market, which parades mostly upscale shopping malls, is not an all-comer affair. TONIA ‘ADIYAN writes that the landscape is littered with challenges only serious and discerning investors can surmount.

The fundamentals favour the growth of retail services in Nigeria. With a large population to support more shopping malls, a growing middle class with increasing purchasing power to contribute to retail growth, Nigeria’sretail services market is on the path of sustainable growth. It has been so in the last nine years when the boom in retail business set in with the emergence of Palms Shopping Mall in Lekki, one of the highbrow areas of Lagos, Nigeria’s commercial capital.

Since then, a number of upscale shopping malls such as City Mall in Ikeja, Leisure Mall and Adeniran Ogunsanya Mall (both in Surulere), Omisson Emporium at Lekki, Bayero Mall in Kano, Kwara Kall in Ilorin, Jabi Lake Mall and Ceddi Plaza in Abuja, among others, have sprang up. There is also a South African retailer, Mr Price.

On the surface, it would appear that the scramble by these retail chains, mostly foreign-owed, for the soul of Nigeria’s booming retail business, is indicative of a sector that does not challenge the financial power and determination of investors. Far from that. The challenges in retail business in Nigeria are many and daunting, only the lion-hearted investor can navigate the landscape to remain in business.

For the operators, the biggest challenge is getting access to the right land in the right location. Most of the existing shopping malls in Nigeria are located in choice areas of commercial cities where it costs a leg and an arm, literarily, to purchase a piece of land. For the operators, such choice locations are necessary since a substantial size of Nigeria’s growing middle class with the disposal income reside there. 

Apart from the high cost of acquiring virgin land, retail owners are also saddled with the huge cost of building modern shopping structures comparable to those in most city centres across the world. This often leads to rentals that many retailers cannot afford if they had to be tenants in those malls. With interest rate as high as 30 per cent, investors say capital is one of the major challenges facing the Nigerian retail market. The project cost of building shopping structures here is expensive and it is often with limited local expertise.

Experts say that the cost of completing a project in Nigeria is almost three times that of South Africa. As former Broll Chief Executive Officer, Erejuwa Gbadebo, pointed out, retail in Nigeria is not for boys. “Mall rentals are high because of infrastructure and development costs, which in turn, demands high turnovers. Infrastructure is poor, red-tape is plenty and officials often interfere. The supply chain also takes far greater focus, with a host of potential obstacles to be navigated,” he told The Nation Shopping.

“It is true that doing business in Nigeria is a challenge,” says South African Sander Norman, who manages Ikeja City Mall. He however, noted that “Investors who offer middle class Nigerians the right price, product, service, quality and choice, have the sky as their limit. According to him, “operators are advised that foreign investors should be prepared to change their models for the Nigerian consumer. If they do so, they stand to gain a firm foothold in a marketplace and a country where consumers are brand loyal and value good service, which is still in short supply.”

While stating that the Nigerian market is vastly different from South Africa’s and its neighbouring countries, Broll (a body which oversees all the malls in Nigeria) believes that research is essential to understand the unique set of consumer needs and norms in Nigeria before venturing into its exceptional territory. For instance, retailers need excellent warehousing to overcome shipping issues in Nigeria where goods don’t move as fast as they do in South Africa. Also, the choice of clearing agents is important and there is often a price attached to clearing goods.

Gbadebo pointed out that though, Nigerians are interested in malls and shops because of convenience, there are things to be put in place. “A place where you can go in and get everything is more inviting than going to a market where everything is open, crowded and crazy. People always want to shop in a modern environment,’’ she said.

She observed, for instance, that “in 2005, when The Palms opened, there were trade bans in place. But in 2011, when some of those trade bans were lifted, international tenants came on board and a different retail phenomenon in form of response from citizens now attracts more retail investors and trade has been booming.

Today, investors keep focusing on how to improve the Nigerian shopping environment with tenants who have promised to expand their scope of business. For instance, South African retailer, Mr Price keeps opening more stores and has created a website to enable it render better services. The store will be growing the Mr Price brand in Nigeria for many years to come not minding the challenges.

But what is the driving forced for the proliferation of shopping malls in Nigeria despite daunting challenges? Experts say that the growing economy has led to a demand for quality housing and other related real estate infrastructure, including adequate shopping centers, which formed the basis for retail businesses to thrive. Retailers are critical economic agents who help to create demand because of their affinity with both the consumers and producers.

Also, retail sales are an important economic indicator because consumer spending drives much of the economy. Besides, the 2003 ban on an array of imported goods that included clothes, shoes, and selected foodstuff by former President Olusegun Obasanjo, which was intended to stimulate local production, saw some Nigerians flying to Dubai and other regional commercial centers to do their shopping.

However, all that changed in favour of Nigerian-based retail shops that have gained in diversity and in sophistication, and have also benefited from increasing public affluence in the industry. Shoprite, widely renowned as Africa’s leading retailer, has also made significant inroads into the country thereby, causing a massive growth.

Perhaps, more importantly, findings show that potential buying power of Nigerians has increased and is recognised by the outside world. Also, the country has become a market place whose economy is growing exponentially and will remain an enticing prospect for potential investors for years to come. That is why more foreign investors see the possibility of several projects in the country and despite the constraint they face they still want to do business here.

“The market and spend needed for retail success is here and growing. Retailers wanting to enter this market need to customize their models to meet the unique consumer needs and aspirations as malls are gaining the support of more Nigerian shoppers,” Feyi Shoyinka of Leisure Mall said.

Shoyinka is right. Nigerians enjoy a first-world shopping environment that is pleasant, safe, cool, unrushed and offers a complete retail experience from shopping to relaxing at the food court. This perhaps, explains why Broll suggests that retailers planning to enter the Nigerian market should start with using a cash-based model initially, rather than counting on sales from accounts or cards. And that they shouldn’t be hindered by challenges here.

Already, part of the challenges has been taken care of by the mobile phone boom in Nigeria. Also, with an increasingly tech-savvy population, digital and social media marketing have become effective tools for investors in this segment of the market. “For retailers who are prepared to develop a country-specific model and invest in research to support a supply chain, which are; the right stock, the best price and service, they should be assured that there’s a bright future in Nigeria,” Broll said.

For Erejuwa,  the regime of shopping malls development in Nigeria is a pointer and an icing on the cake to what the future holds for shopping and sight-seeing experience in the country regardless of the challenges. This, she said, was evident in all of the massive state-of-the-art shopping structures strategically positioned in the country, from Lagos to Ibadan, Kwara to Abuja, Kano to Enugu, Delta to Edo and so on.

At the moment, Nigeria’s retail opportunities keep growing on the back of mass urbanization, emerging middle-class, rising retail awareness, and an increasing consumer culture. While the growth in the retail business could be attributed to rapid economic development and to an extent, favourable economic policies, experts advise that for the country to maintain or even surpass the rate of growth, solutions to the challenges facing the industry must be provided.