Challenges remain for retailers despite improvement in macro-economy
Despite the seeming improvement in some aspects of macro-economic performance, especially inflation rate and foreign exchange, challenges still remain for retailers in shopping malls because the harsh reality facing the retail sector remains largely unchanged.
For the first time since January 2015, a marked slowdown in the rate of inflation was recorded in the first quarter of this year, leading to consumer price index (CPI) decline by 1.46 percent from a peak of 18.72 percent in January 2017 to 17.26 percent in March 2017.
Similarly, there has been an improvement in liquidity that resulted at the official and parallel foreign exchange markets, leading to a significant convergence between rates offered on both markets. At the more accessible parallel market, the naira appreciated by around 26 percent from a peak of N516/US$ to N380/US$ by the end of the first quarter of this year.
But these improvements are yet to feed into improved consumer confidence, leaving the retailers with low patronage, declining footfalls at malls and low capacity for re-stocking their merchandise.
“Whilst some retailers benefitted from the increased dollar liquidity and appreciation of the naira at the parallel market in the first quarter of 2017, there was little respite with respect to other costs associated with retail operations”, notes Nnenna Alintah, a researcher at Broll Property Services .
Though retailers welcome the appreciation of the naira at the parallel market, a lag time exists before they start to feel the full benefits of a strengthening naira and Alintah hopes that if the naira follows this trend in a sustained manner, lower operational costs will materialize with respect to restocking and sourcing merchandise by the retailers.
Another level of worry for the retailers is that challenges still persist in the aspect of rent payments which remain the largest portion of their operational costs. Because rents are paid in naira at the official foreign exchange market rate, effective rents have remained high due to the Central Bank’s policy which allows the exchange rate to float.
Given these economic challenges, developers and investors continue to reassess their investment and expansion plans. Alintah observes, however, that certain projects currently under construction have continued to persevere in order to deliver their schemes to the market.
The flipside of the challenging economic environment, financial problems faced by retailers and an oversupply of retail space is that landlords are now competitive as existing and prospective tenants continue to push back on leasing terms.
The overall effect of all these is that the growth of the retail sector is impaired such that with an estimated population of 180 million, Nigeria according to a World Bank report has a total retail mall space of under 500,000 square meters and purchasing power parity (PPP) of $5,360.
“This puts Nigeria behind countries like South Africa with a population of 54 million but a purchasing power parity (PPP) of $13,165 and 23 million square meters of retail mall space”, notes Emeka Eleh, former president, Nigerian Institution of Estate Surveyors and Valuers (NIESV) in a Real Estate 2017 Outlook report.
Nairobi, capital of Kenya, has a total retail mall space of 390,000 square meters with 470,000 square meters in the pipeline. “Nairobi’s population is currently estimated at 3.50 million while the purchasing power parity of Kenya is $3,100 as at 2015”, Eleh adds.
What this shows however is that the Nigerian retail market offers serious depth for development of more malls in both premier and secondary city locations, offering investors fabulous opportunity for investment in a country with a burgeoning youth population.
It is estimated that 60 percent of Nigeria’s 180 million population is under age 40. The population also has fair disposable income, growing internet presence, changing cultures and habits regarding shopping which present increased shopping opportunities and the varieties offered by retail malls.
CHUKA UROKO