23 December 2012

Nigeria: South African Retailers Spread Into Major Cities

Photo: AkwaIbom.com
A Nigerian oil refinery.

Amid the slowdown in economic activities and the attendant fall in people's purchasing power, some major retailers from South Africa have decided to increase their sphere of influence in some major cities in Nigeria.

Market sources said the retailers are cashing in on the prevailing low liquidity situation, which is said to be compelling Nigerians to place emphasis on food and essential household items above any other needs.

A survey carried out by the global financial advisory firm, Renaissance Capital, for instance, showed that many of the retailers are already looking at smaller cities outside the key cities of Lagos and Abuja. It was gathered that Massmart, Woolworths and Shoprite, three leading retailers from South Africa recently opened new stores in Enugu, in order to register their presence in the eastern part of the country.

In addition, Massmart plans to open a store in Kano next year, while Shoprite recently opened a store in Ilorin and plans to open stores in Ibadan and possibly in Kano next year.

"Most of the SA retailers agreed that Nigerian consumers have been under pressure, but the food retailers seem to be coping better than the clothing retailers, as they are more accessible to both low- and high-income consumers. Among the clothes retailers, Mr. Price appears to us to be the star performer - it seems to have got its pricing right and its store was busy even at noon on a midweek day, while the other clothes retailers' stores were mostly empty," the report by Rencap stated.

Foschini Ltd., another South African clothing and household goods retailer with nearly 2,000 stores, has two stores in Nigeria. "Foschini appears to us to be the worst performer, as it initially stocked merchandise that was unsuitable for the Nigerian climate; the merchandise had to be significantly discounted to clear the stock," the report added.

Rencap, which recently undertook a consumer trip to Nigeria, noted that consumers seem to be under pressure due to the lack of money in circulation, as the government has not yet released funds allocated to many capital projects.

"The effect of this has been compounded by floods in some parts of the country that led to the loss of crops and livelihoods. In addition, the recent ban on motorcycles (known locally as okadas) in many parts of Lagos State has resulted in more traffic within the state as a result of more cars on the road, and has caused a slight slowdown in economic activity.

Lastly, due to the current fuel scarcity in states such as Lagos, consumers are being forced to pay more for transportation, which is also reducing disposal incomes," the report said.

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