Friday, July 13, 2012
STRATEGY AND INNOVATION: THE CASE OF NIGERIA’S RETAIL MARKET
Though some substantial number of Nigerians live below poverty line, about 65% according to some estimates the population of middle class in Nigeria is still very big. Assuming that the population of Nigeria is 160 million, base on the 35% population that is above poverty line, you have some 56 million people with some kind of big pocket to make purchases in the Nigeria vast retail market. This number is more than the entire population of South Africa, the biggest economy on the continent. With GDP of over $450 billion, Nigeria is indeed a big retail market in Africa; though many investors around the world failed to take this into consideration when they are drawing their investment plans. In the minds of many western investors Nigeria is still a chaotic place to do business, cramped with people who barely understand the working of the modern world. This impression is wrong; I agree that Nigeria is a chaotic place, but when you summon the will power to look beyond the headlines there is a lot of profit underneath, what economists called abnormal profit. If you do not belief my optimism ask Aliko Dangote, the richest man on the continent who made his billions in Nigeria. Yes, I concur there are some risks involve in investing in Nigeria but tell me where in the world does one invest without facing one form of risk or another. The law of profit as we all knows says that where there is much profit there is risk, not necessarily the kind of deadly and toxic risk that hide like virus in the body and surface later as we have seen during the last global economic crisis. Despite the way some investors view Nigerian market, there is still large number of people who see the country differently. The annual total number of foreign direct investment (FDI) that is coming into Nigeria is still in billions of US Dollars, and a lot of foreign retail companies are coming into the country.
I am foreseeing the Nigerian retail sector becoming the third most dynamic sector after banking industry and telecommunication in the country. In few years time it growth in term of revenue and profit will multiply as the current economic grow continue and the size of the middle class expanded. All ready foreign retail companies are rushing to set up shops in Nigeria with first to do that to include, Shoprite, Mega plaza, Spar etc., the numbers of local companies that are modernizing and expanding are increasing in number daily. Shoprite the South African giant is planning on opening 700 shops in Nigeria in the near future; already it has presence in five locations three in Lagos, one in each of Abuja and Enugu. A new shop is to be open in Ilorin in Kwara state in August of this year, while the second shop for Abuja and entry into Kano vast retail market is to come very soon. Though, small retail stores still account for substantial number of the retailers in Nigeria, big corporate entities are making inroad. The country’s growing pool of young population and higher grow rate is the main magnet for attracting future retail investment into the country, making the potentiality of her economy to become the biggest in the continent more apparent. A recent 2011 study, by Jude Uzonwanne for Monitor Company, put the fast growing key industries with diversification benefits as electricity, housing and retail further driving home the potential of the retail industry in the most populous country on the continent. One advice for Western multi nationals that are planning to enter into the Nigerian market is that they should study the environment very well, looking at its important peculiarities. For example, unlike in typical rich countries of the world there is a serious infrastructural deficiency to the extent that one has to provide for many of his infrastructural needs like power production, water supply, security and access roads in some instances.
Though most of the big malls are located in Lagos and Abuja other parts of the country that hold great promise for the retail industry includes Kano, Port Harcourt, Kaduna, Enugu and Ibadan. Due to the fact that these places have substantial number of middle class families residing in them, and substantial number of other supporting businesses. In Kano there is, currently, the construction of Ado Bayero mall going on which, according to it originators, will be the biggest mall in Northern Nigeria including Abuja when completed. The mall building is expected to cost over 11 billion Naira when completed, covering the land area of the permanent site of Kano trade fair complex along Zoo road, and with parking space to accommodate thousands of cars. Other big malls currently operating in the Kano city include Country Mall, Well Care, Sahad stores, and Jifatu. The informal retail market in Nigeria, though, unorganized is very big worth billions of dollars. Nigeria is a nation full of people with average to high level of brand recognition and loyalty; because when a Nigerian says he is for Dangote or Nestle he means it and follows his word with action. This explains the reason why some retail stores succeeded better than others, people patronize some stores because of the low price of their products, others because of the quality of the product in display. While for others it is the location and the structure that housed the store that hook their pockets. Sahad stores, an indigenous super market that originated from a small location in Kano decades ago, boast one of the biggest shopping mall in Abuja and Kano making hundreds of millions in annual revenue. One of the major attractions of Sahad stores according to shoppers that patronize the store is their lower price compare with other stores. But, that should not be surprising taking into consideration the back ground of the owners and the original location from which they started the business, Kano, which is known nation wide for it retail trade and low price products.
The famous big stores that were available in most big towns in Nigeria in the 70s and 80s such as Leventis, and super stores are no more; leaving behind them old ware houses. The economic problems of the 1980s were responsible for the demise of these brand names that still ring some kind of alarm in the mind when their names are mention in front of people who knew the experience. Structural adjustment program (SAP) of Babangida regime, together with the recession that accompanied it combine to kill the middle class of the period, leaving the country with only two extremes, the upper rich and the lower poor. This trend particularly led to the growth of the informal retail sector at the expense of big retail stores. But, as the economy grows and middle class population increase in size, so does the big retail stores. According to a recent report by Euro monitor on the Nigerian retail industry, the formal retail market replaces the informal retail segment which the report has attributed to the growth in the economy. Despite, the fact that Nigeria is among the top three countries in Africa in term of internet usage, the country’s retail market lags behind in innovation and adaptation of internet for online sale. For example, there is yet to be a Nigeria’s equivalent of the American online giant Wal-Mart, that sale every thing online. While we have seen the proliferation of versions of Wal-Mart and Amazon in such countries as China, Indian and Russia, Nigeria has none. Though, I knew of many efforts toward the development of such a flat form, but it is taking time. The world of internet revolution that is currently overturning the modus operandi in such industries as Newspaper business, Television broadcast, Music sale, and Airlines operations is doing the same thing to the retail business world wide, the earlier the Nigerian retail sector understand this the better for it. Lastly, a piece of advice to those intent of entering the Nigerian retail market is for them to explore this angle of the modern retail market, that is online retailing like is done by Wal-Mart. For a start, they should begin with Abuja and Lagos, two places with high concentration of internet users and facilities as well as large population of rich families.
Uzonwanne, Jude (2011), “Investing in Nigeria: A brief Strategy Guide”, Monitor company Group
Country Report, 2012, ‘Retailing in Nigeria’, Euro Monitor International
Businessday, Nigeria, “Would informal retailers remain relevant in Nigeria?” Wednesday 11 April, 2012