More foreign retailers warming to Nigeria’s soaring buying power

A fresh wave of interest is blowing across the Nigerian retail market with more foreign retailers warming up for entry into the market to take a bite of the nation’s soaring household buying power.

The past couple of years have seen growth in retail business in Nigeria due largely to the growing sophistication among the emerging middle class who have shifted from the traditional shopping culture in the open market to a more organised and convenient shopping experience which retail malls offer.

Consumer spend in Nigeria is quite intimidating and, according to an earlier report by BusinessDay, within a four-million-population settlement comprising one million household in Ikeja, Lagos, some of the households spend $1,500 per month per household, translating to $18,000 per household per annum.

According to investment analysts, this statistics is quite compelling, and a fresh study by a private equity investment firm reveals that in Dubai, for instance, an average Nigerian household that comes to shop spends $2-4,000 at a go while in the UK, retailers rank Nigerian shoppers among the top three.

Similarly, in UAE and China, Nigeria is also among the top three buyers and shoppers, which is why retailers in these regions want to bring their stores to this country to meet the shoppers in their homes.

“These retailers want to bring their shops and brands here based on the empirical evidence they have seen about an average Nigerian shopper in their shops; they have firsthand information on the buying power of an average Nigerian shopper,” Chu’di Ejekam, director of Real Estate in Actis, confirmed to our correspondent in an interview in Lagos.

“I have spoken with major retailers and they told me they had, before now, made presentation to their boards about their entry into Nigerian retail market and other West African markets but they were laughed out of the way. In 2013, it is a different story because at board level, there is a surge of interest to enter these same markets with targets to have many stores in Nigeria and Ghana in the next three years. So, there is a sharp shift in thinking and the perspective of these retailers has changed positively. There are success stories in terms of trade volumes by the existing retailers in the country,” he added.

Ejekam hinted that these retails are going to come into this market in multiple approaches – one, by themselves; secondly, through joint venture agreement; and thirdly, through a franchisee model where they will enter into a royalty arrangement with local franchisees. He stressed that these are the three approaches that are being considered at the moment, adding that some of these groups have well over 70 brands that many of the Nigerian shoppers are very familiar with.

“This development is quite fantastic for the landlords, institutional investors like us and even the consumers themselves because a lot of the goods they purchase in overseas markets they will be buying in local markets here,” he said.

According to him, what is driving this renewed interest is that it is becoming clearer to these retailers internationally that a lot of the buying interests are coming from Nigeria.

“The challenge here, however, is insufficient physical structures (real estate) in terms of standard malls that will absorb this increasing interest from international retailers,” Ejekam said, pointing out that in Lagos, for instance, a city of 18 million residents, there still remain only two world-class malls – The Palms and the Ikeja City Mall.

“So, the question is, if a retailer wants to come in, where will he establish his shop? There is pressure on big time investors to try to invest more in order to create space for the incoming retailers. The pressure is there on investors to try to reduce the existing demand-supply imbalance in the market. Supply is not sufficient to meet the growing demand,” he noted.

Another challenge working against meeting the demand, he said, is land, explaining that it is still difficult to get one that is well priced and large enough to accommodate the kind of mall that Actis would like to build.