Retail–Industry sector

Retail sector recovers after Westgate attacks New investments in the expansion of retail operations in east Africa are on the rise as the industry recovers from last year’s terrorist attack at Westgate Shopping Mall in Kenya, underlying high growth expectations from investors. While players said the attacks by Al Shabaab terrorists that killed 67 people in October 2013 slowed down formal retail business for the first few months, the industry is in recovery as premises improve security risk management and investors bet on the long-term potential offered by growing regional economies. Several retail outlet managers interviewed in the capital Nairobi said they have invested more in security, acquiring more sophisticated surveillance cameras, better screening equipment and hiring armed security.hide“Retailers are investing more in security to win the confidence of retailers. One focus has been on having armed private guards. If there had been armed security at Westgate, there could have been some level of resistance, which may have altered the outcome of the attacks to lesser deaths and destruction,” said Alex Kaminju, Managing Director of Westport Security Services. The formal retail sector in east Africa is dominated by Kenyan retail chains, Nakumatt Stores and Uchumi Supermarkets. Regional giant Nakumatt Stores has expanded into Tanzania after buying out retail outlets operated by South Africa’s Shoprite. It has announced plans to establish operations in South Sudan and Burundi. It already operates in Rwanda and Uganda. Uchumi Supermarkets, a Kenyan-listed company, has expanded into Rwanda, with planned entry into South Sudan and Burundi. The company recently listed at the Dar es Salaam Stock Exchange in Tanzania and operates in Uganda. Local players like Ukwala, East End, Tuskys and Naivas are also increasing their local outlets. An upmarket shopping centre, Thika Road Mall, which opened its doors late last year, is booked to capacity, while the largest mall so far in Kenya, the Garden City Mall, is ahead of its completion schedule next year. Professor Joe Kieyah, the Head of Private Sector Development Division at the Kenya Institute for Public Policy Research and Analysis said increased investment in the retail sector is an indication of smart planning ahead of an economic boom set to be realised from, among others, oil and gas discoveries in the region. “Investors know that we are in a fluid situation as we manage our security and governance issues. They want to be there when the situation stabilises and this explains the current investments,” said Professor Kieyah. There is a huge unmet gap in the formal retail industry in east Africa; statistics indicate that retail penetration in east Africa is just 14%. The retail sector is also becoming more formalised as supermarkets of varying sizes replace the village dukas (shops). Demand for formal retail is also rising because of the growing urbanisation and the appearance of devolved governments in countries like Kenya that is turning formally idle urban centres into new centres of county administration. But still, much of retail revenue is generated from Nairobi, the city that generates 67% of Kenya’s gross domestic product (GDP), according to the Kenya National Bureau of Statistics. Retailers say when the Westgate attacks happened, there was a considerable change in shoppers’ behaviour, particularly in Nairobi, for fear of repeat attacks in the shopping malls and supermarkets. “Three months or so after the attacks is when a serious drop in the shopper walk-ins eased. People were avoiding crowded areas and the government advised people to do so,” said James Kamau, Manager of Tuskys Pioneer Branch. “But eventually, shoppers are getting confidence in the improved security measures that we have implemented. The situation in terms of shoppers’ flow is back to normal,” he said. Nearly all retail outlets especially in Nairobi have invested in security screening of their customers. At the Thika Road Mall for instance, there is through-screening of motor vehicles. The number of security guards manning entries and exits has also been increased. Some retail premises are going to great lengths to protect shoppers. The Junction in Nairobi is using the services of a security company operated by former British Army Special Forces to manage its security risks. Nakumatt Stores and Deacons were some of the biggest losers after the Westgate attack. Nakumatt was the anchor tenant at Westgate Shopping Mall, while Deacons had three stores there. Deacons Chief Executive Officer Wahome Muchiri said the retailer lost an estimated US$2m in revenue and stocks worth millions of dollars inside the three stores. “The Westgate terror attack led to the loss of three key stores and the overall ramifications of this incident on all shopping trends negatively impacted on consumer behaviour,” said Mr Muchiri. Deacons stores are mostly located in the upmarket shopping malls where shoppers have been more sensitive to the security situation since the Westgate attack. Nakumatt lost US$50m in sales and saw revenue fall by nearly a tenth last year as a result of the attacks. In its most recent trading update, the regional chain reported gross sales of more than US$600m for the fiscal year ended February 2014, compared to US$650m a year earlier, a drop of 7.7 per cent. But recovery is on course. Deacons has announced plans to sell a significant stake to a strategic shareholder as part of the company’s plans to inject fresh capital and introduce new brands. Mr Muchiri said the retail outlook is ‘promising’ and this is why the company is positioning itself to benefit from the increasing pool of richer consumers. Most visible recovery has been the expansion by respective retail outlets, with Nakumatt and Uchumi taking the lead. In addition to the recently opened branch in Rwanda, Uchumi Chief Executive Officer Jonathan Ciano said the chain would be opening two more branches in the Tanzanian city of Dar es Salaam this year to add to the existing three. Uchumi has six branches in Uganda. The company is also set to open branches in Kisumu and Meru counties, underlying its two-pronged expansion strategy of regional and domestic market focus. The chain is in the process of opening two branches at Kenyatta University on Thika Road to tap the growing population in the area, comprising students and residents in surrounding estates. The same approach has been adopted by Nakumatt which, fresh from Tanzanian acquisitions, is now eying South Sudan and Burundi, with expectations the stores will be operational early next year. “We have already identified the banks that will finance our expansion. It’s a huge investment that could not have been managed by our internal cashflow and that’s why we opted to borrow,” said Nakumatt Holdings’ Head of Strategy and Operations Thiagarajan Ramamurthy. He said the company would also open a new branch in the coastal city of Mombasa in October. “We have now turned our focus on developing new outlets in the country after the recent acquisition of three Shoprite stores in Tanzania. The strategy is now to create more networks in the local market,’’ said Mr Ramamurthy. Kenya is expected to continue to be the dominant player in the region’s retail sector because of its growing local market, with a wealthier consumer base from which to launch into other regional markets, according to global audit firm PricewaterhouseCoopers. A report by research company Euromonitor noted the increasing size of the middle class would continue to drive growth in the retail sector in Kenya and the rest of east Africa. The report cites expected foreign entrants into the retail market as an indication of foreign interest in the expanding industry. According to the Kenya Investment Authority, retailers such as Wal-Mart—present in Kenya through its South African subsidiary, Massmart—Game Stores, Jet and Edgars plan to open retail outlets. But although Kenya is a regional leader in the retail industry, the industry’s attractiveness to investors is below that of regional compatriots Rwanda, Uganda, Tanzania and Ethiopia, according to American consulting firm AT Kearney. The company ranked Kenya 20th in terms of attracting investors to the retail industry, out of the 48 African countries studied in its recently released survey. “Kenya’s ranking is hampered by low scores in market size and low growth rates for both GDP and sales per capita. Rwanda has an efficient government and strong macroeconomic indicators that reveal many opportunities for international retailers that can offer basic packaged goods,” the survey noted.

Retail–Industry sector

Want to read this article?

Read Next

AXA P&C increases premiums by 7% as rates rise at AXA XL

Hong Kong and Shanghai to cooperate on captives and ILS

Swiss broker Kessler names head of special risks

US insurers expected to increase casualty pricing as social inflation rises

Consultancy S-RM expands cybersecurity practice to APAC

AXA P&C increases premiums by 7% as rates rise at AXA XL

Hong Kong and Shanghai to cooperate on captives and ILS

Swiss broker Kessler names head of special risks

US insurers expected to increase casualty pricing as social inflation rises

Consultancy S-RM expands cybersecurity practice to APAC

Want to read this article?

Read Next

AXA P&C increases premiums by 7% as rates rise at AXA XL

Hong Kong and Shanghai to cooperate on captives and ILS

Swiss broker Kessler names head of special risks

US insurers expected to increase casualty pricing as social inflation rises

Consultancy S-RM expands cybersecurity practice to APAC

Related Articles