South African retailer Woolworths Holdings Ltd. (WHL) has canned its three-store pilot project in Nigeria as high rental costs, duties and complex supply chain processes make trading “highly challenging”, SA Property and Commercial News has reported.
The company made its first Nigerian investment with two stores launched in Lagos in March 2012, followed by an additional store in Enugu, in October.
Despite several attempts to improve performance, Woolworths CEO Ian Moir said the group’s Nigerian outlets were “unable to sustain a compelling product and value proposition which represents the brand well, and meets the needs of the Nigerian customer in a climate that is hot throughout the year”.
“When an investment no longer generates viable returns, difficult decisions have to be made to contain costs,” Mr Moir said.
Meanwhile Broll Nigeria says Woolworths pulling out of Nigeria need not deter South African retailers from profiting in the country.
Broll expects more South African retailers, especially value retailers, to seek opportunities in the Nigerian market in the coming months and years.
“Yes, doing business in Nigeria is a challenge. But if you can offer middle class Nigerians the right price, product, service, quality and choice, the sky is the limit,” says Norman Sander of Broll Nigeria, who manages Ikeja City Mall in Nigeria.
South African retailer Shoprite is notching up exceptionally strong trading at Ikeja City Mall, according to Sander.
Mr Sander says South African retailers should be prepared to change their models for the Nigerian consumer. If they do so, they stand to gain a firm foothold in a marketplace in a country where consumers are brand loyal and value good service, which is in short supply.
He adds the Nigerian market is vastly different from that of South Africa and its neighbouring countries. “Research is essential to understanding this unique set of consumer needs and norms, before venturing into this exceptional territory.”
Despite all the opportunity, Sander cautions that retail in Nigeria is not for sissies.
“Mall rentals are high because of infrastructure and development costs which, in turn, demands high turnovers. Infrastructure is poor, red-tape is plenty and officials often interfere. The supply chain also takes far greater focus, with a host of potential obstacles to be navigated,” Mr Sander said.
Sander explains that retailers will need excellent warehousing to overcome shipping issues in Nigeria, where goods don’t move as fast as they do in South Africa.
“The choice of clearing agents is important and there is often a price attached to clearing goods,” notes Sander.
Daniel Isaacs, equity analyst at 36ONE Asset Management, said Woolworths was a good allocator of capital.
“They did mention that they were doing a trial … pulling out at this point means that they’ve done their model, they’ve looked at the returns possible and they’ve decided that they can get better returns for shareholders by investing into other parts of Africa and South Africa,” he said.
According to Mr Isaacs, because of price points, a retailer like Mr Price was probably better placed to move further out into Africa. “In the African countries where you have a much lower gross domestic product (GDP) per capita, affordability is a huge concern, and you can’t, at least not for a long time, institute the same credit services you have here.
“It will be more interesting to see where the other relatively higher-priced guys like Foschini and Truworths stand and what moves they now make in terms of Nigeria,” he said.
Woolworths said its Africa strategy remains unaffected. Its remaining 59 stores in 11 African countries will continue operating normally.
