#trendMARK: Nigeria’s retail deathmatch
a trendMARK feature by Gugu Mtshali. Nigeria, with its burgeoning middle class of repatriated professionals, is poised to undergo a sea-change in retail, as South African chains enter the high street, to compete with both the locals and online stores.
I moved to ‘Naijaland’ – the biggest economy in West Africa – in 2005. At first, Lagos was a bit of a blur for me: the flurry of activity was more than I had ever experienced, let alone anticipated. It was dizzying but exciting at the same time. The energy in the people was palpable: the ongoing business dealings, the crazy traffic, the incessant chatter.
Certain changes in the Nigerian landscape have been apparent — particularly in the retail space, which is most exciting for me. Given these changes, could a fully formal economy be on its way? Whatever happens, Nigeria’s real boom is yet to be realised, and evangelists should take note.
If you ask any Nigerian national about online retail, they will quickly tell you it has always been around — for over a decade possibly. And this is true; but it’s only in the last year or two that it has really taken off. The general Nigerian populace has only recently become more open to using online retail, with increasing numbers of local boutiques opening online stores. There are certain factors that have resulted in this transformation:
Improved Banking Services
With the ups and downs of the Nigerian banking industry, due to countless reforms by different governors of the Central Bank of Nigeria (CBN) — which have lasted over two decades, trust in the banking system has been very low. Dr. Ngozi Okonjo-Iweala’s return to the Nigerian government to serve as the Minister of Finance and Coordinating Minister of the Economy, coupled with the latest reforms from CBN Governor Sanusi Lamido Sanusi, have moved the economy in the same direction: towards a global standard bank with full credit facilities.
This has been a precarious path, with the public being educated about money laundering and credit card fraud. Other facilities brought about by Okonjo-Iweala, Sanusi and their teams include mortgage facilities for buying property, credit card facilities for stores and personal loans. Changing the perceptions of the Nigerian banked and unbanked masses is a long process, and it will be some time before the entirety of the Nigerian population fully trust their banks.
High Internet Penetration
One of the reasons Nigerians give for their claim that online retail has been around for a while, is the fact that Nigeria has long had the high internet penetration. Most Nigerians are connected, many through mobile. For them, online has been a source of news about politics, entertainment and sports — and also a relatively cheap means of connecting with their relatives in the diaspora. This high level of penetration is the very backbone on which on line retail rests; it also provides an opportunity to engage and interact. For brands, the challenge has been in packaging their content and merchandise well enough to encourage consumer participation on that platform.
A Steadily Growing Middle Class
Previously Nigeria was known to have two main population segments: the super-rich and the poor. This income divide was largely blamed on the huge brain drain that took place in the country over the past 30 years. It is no wonder that Nigeria is famous for its huge global diaspora community, many of whom are qualified: doctors, nurses, engineers etc.
But in the last decade there has been a steady trickle of Nigerian nationals back into the country. Many of the people coming back are young, economically active professionals seeking to establish themselves in their homeland. No doubt one thing that is attracting them back home is the economic turnabout from President Jonathan’s administration.
These prodigal sons and daughters of Nigeria are some of the people who now form part of the burgeoning middle class. It’s a middle class that responds to the same market forces as middle class segments in other emerging markets: they have great purchasing power, and an affinity for high quality luxury goods and global standards of living.
High Street Retail Still the Mainstay
Although online has taken off, conventional stores are still generally the mainstay of retail in Nigeria. What struck me, and still strikes me, about the West African state’s economy, is the continued growth of informal trading. Market stalls, street vending and backyard workshops are steady income generators for many of the entrepreneurial population.This section of the market is probably going to be the most challenging to topple for online retail.
It is also interesting to note the rise in formal trading in the last couple of years. South African brands — Game, Foschini, Truworths, Edgars, Milky Lane – have made decisive moves to set up shop in Nigeria, and they are braving the brutal competition posed by informal trade. The Massmarts and Foschini Groups of this world will continue to grow in Nigeria in the upcoming years.
They all bring a new dimension of products and services to the formal trading environment in Nigeria. It will be interesting to see how they incorporate local Nigerian conventions in clothing, food and other retail services. For instance, Nigerian food is very specific to the Nigerian community — what most may consider ‘traditional’. The emergence of such brands as Nando’s did not cause an upset in the category at all, but rather opened up another option for consumers. Needless to say this ‘new option’ became obsolete as the novelty wore off.
In clothing, what many term ‘traditional dress’ is not considered unusual in Nigeria. Every Friday, everyone dresses traditionally – something akin to Casual Fridays. This clothing style is custom-made by tailors who run businesses in their backyards or small shops in the central business districts. This attire is also generally worn on Sundays for church, at weddings, funerals, parties and other family gatherings.It will be interesting to see if the new formal trade outlets consider entering that market currently dominated by informal traders. If they do, it will be even more interesting to see what kind of partnership opportunities they conjure up in order to keep that industry active and continue support for local businesses, formal or not.
Informal Trade Dominates
I am no economist, but I estimate that in the retail sector, informal trading dominates about 80% of all transactions. Nigerians are used to the human engagement—with the option of bartering—when they do business with informal traders. Informal businesses build personal relationships with their regular customers, and this is where the challenge lies for formal trading.
For big brands like Edgars and Game, the opportunity for personal engagement—let alone negotiating for prices—is not possible. There is a serious need for big brands to find a means to counterbalance this personal relationship if they are to survive the Nigerian economy. Could social media hold the answer? Formal trading and online trading command the remaining 10% of the market each. Targeting the growing middle class is one sure way of getting ahead; however, whether this will sustain these businesses and give them room to grow remains to be seen.
The Nigerian economy is changing, and the retail sector is one place where one can monitor these changes. The emergence of online trading offers a novel dimension in Nigerian trade. Formal trading is equally interesting, because for the consumer the choices become widened.How these new dimensions affect the status quo in the coming years will create exciting times for the Nigerian retail sector players. And there will be lessons to be learned that will be relevant for the rest of Africa, for years to come.
Gugu Mtshali heads up is Ornico’s Africa division.
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