Investors develop shopping spaces in the formal sector A growing middle class widens the consumer base Major online retailers move to tap the large market Reforms seek to improve cybersecurity in e-commerce20 95% of the retail market remains informal ‘eis estimated that ‘between 2008 and 2020, the food and consumer ‘goods segment wil Increase by $40bn, party as. ‘recut of eal GDP growth, Ppprosinatly 86% of Migeiars mit atic grocery budget Long-term potential Underlying fundamentals drive growth in the retail market Following a decade-long period of growth, in which formal retail supplies more than tripled, Nigeria. retail sector faced several challenging years Macroe- ma Z 4 Ae ‘hamid cs wil account for 27% ofthe population by 2020, that the CPl rose by 14.8% in the 12 month period between tay 2017 and May 2018. RETAILIMPACT: In Novernber 2017 Nielsen revealed that Nigerian consumers had become increasingly more price conscious as a result of the high inflation and subdued economic growth. Approximately 70% of the Nigerian shoppers sur- veyed by Neilsen stated that they were aware of the prices for standard grocery store Items, while ‘more than 95% noticed when those prices changed. ‘further 60% of shoppers said that they were cut- ting back on luxury grocery items and buying only essential basket items, and 27% reported buying less groceries overall A further 23% were buying in bulk to save money, while 17% had switched to cheaper products. According to Nielsen's insights, the fast-moving consumer goods category that was most affected byinflation was fuitjuice, with 93% of shop- pers saying they bought less of this product. Next hit items were carbonated soft drinks and mineral water Between 11% and 18% of urban household have ‘annual incomes of more than $10,000, and is projected thet by 2020.05 much as haf of Nigeria wealth growth wil come from this cohort. Consumer price index, 201718 Om Fuad Urban 230 235 SS SPP PP = Fe GP WT VF Source: NBS Pree ase= 00 ov 2008)ager remains one of Ars tp rtaimeteran destinations, despite een ccromie chal Formal retail supply reached 313,500 ‘sqmetresin 2017 (92%), fresh meat and seafood (911), and laundry detergent and household products (91%). Some 76% ‘of shoppers said they were influenced by promotions, ‘and 21% said that they would switch stores based on Which one offered the most appealing or relevant price promotions, regardless of location. Approxi- ‘mately 92% of Nigerian consumers carefully consider their choices prior to purchase, and 86% attest chat they maintaina strict grocery budget. However, 82% of respondents admitted to making the occasional unplanned or impulse purchase. STALLED MALLS: Most formal retail space in Nige- ria is rented in US dollars In its September 2017 report examining Nigeria's retail real estate, mar- ket researcher estate intel found that retailers who relied on imports to restock struggled with the dual burdens of rising product prices and rising rents. Illustrating this, South African discount clothing retailer Mr, Price closed a store in Ibadan, and moved all remaining stock to Lagos. In the aftermath of the recession, many shop= ping centres in development phase were stalled, {and estate intel found that construction on RMB. Westport’s planned 28,000-sq-metre Sunrise Hills ‘Mall in Asokoro as well as its Royal Gardens Mall in Lekki, Lagos were both suspended. Additionally, property developer Resilient Africa had planned to build a portfolio of shopping malls in seconct-tier cities, but progress was adjusted for the prevailing ‘economic conditions. According to estate intel, malls that were originally intended to be 12,000 sq metres were adjusted down to 8000 sq metres on averag end nearly 12,000 sq metres of cumulative retai space was lost in 2016 and 2017, This was a direct result of demand-led project adjustments reacting and adjusting to a stagnant market. ROAD TO RECOVERY: Of the 30 countries surveyed for global consulting firm AT Kearney’s 2017 Global Retail evelopment Index (GRDI), released in Jenuary ‘wanofordbuinesgroupcom country nigel 2018, Nigeria fell from 19th to 27th place. The firm's numbers show that total national sales felto $109bn in 2017, down from $125bn the previous year. Low oilprices, security threats and corruption were cited as the biggest challenges weighing on retail growth, however, the GRD! found that Nigerian retail'slong- term prospects remain positive, supported by the budding middle class, the growing popularity of for- mal retail space and the rapid rise of e-commerce (cee analysis). This view has been reiterated by a variety of stakeholders in Nigeria. With the World Bank reporting that in 2017 real GDP grew by 0.81%, the country’s broader return to macroeconomic growth will also support a retail recovery. ‘CONSUMER CONFIDENCE: Consumer confidence also improved in 2017, though sentiment slipped during the first quarter of 2018. Nielsen Africa stated in March 2018 that Nigeria gained five points on ts consumer confidence index (CC), closing 2017 at 122 points. The percentage of Nigerians that reported feeling positive that their finances would improve over the next 12 months rose by 9% to reach 84%, hile the proportion of people expecting their job prospects toimprove rose by 3% tohit 65%. Some 54% of respondents recorded extra income after meeting ‘essential living expenses, marking an increase of 9%. In May 2018, however, the proportion of people with positive outlooks for their personal finances fell to 78%. Concurrently, the CCI slipped by nine points to 113 and the percentage of those who anticipated improved employment prospects over the following 12 months dipped to 56%. Nigerians immediate spending intentions fell by 5% to 38%, and consumers who reported having spare cash after ‘meeting living expenses fell by 9%, down to 45%. ‘According to Nielsen Africa's survey, 84% of Nigerians are committed to asavings regime, with 76% hoping to investin home improvements and 68% preferring to spend surplus money on items like new clothing INVESTMENT TRAJECTORY: Although in recent years a volatile macroeconomic backdrop has reduced retail growth, the sector has remained attractive to investors. At the same time, the atest massive influx of formal space will key ead deve! ‘opers to alter their investment strategies. Retail space in the country grew by an average of 38% annually between 2004 and 2017, rising fastest during the boom era between 2009 and 2015, when the annual growth rate increased to 40% Formal retall supply rose from 30,000 sq metres in 2008 to 199,600 sq metres in 2015, 298,500 sq metres in 2016 and it was estimated to reach 313,500 sq ‘metres in 2017. Of the 27 modern retail centres ‘operating in the country as of August 2027, 63% hhad been developed by domestic investors and just 34% originated from foreign investors. According to local media reports, the country attracted $1.56n worth of investmentin the formal ratall sector in the period between 2014 and 2017. Notable recent and upcoming shopping centre evelopmentsinclude Royal Gardens Mall and NovareGateway mall. RMB Westport’ Royal Gardens, budg ‘ted at $170m and originally anticipated to open in Novernber 2017, will eventually offer just under 30,000 sq metres of formal retail space in Lagos. The $68m, 15,000 sq metre Novare Gateway mall, ‘opened in December 2017, was developed by South African private equity firm Novare Equity Partners, Its opening lowered the average rent forretal spaces (F 100-200 sq metres to $43 per sq metre amonth Jn the fourth quarter of 2017, up from $44 in the third quarter. Novare Gateway mall joins Novare’s 8267 sq metre Apo mall located 18 km away, as well {as Novare Lekki Mall, which opened in August 2016 and, at 22.000 sq metres, isthe largestin Lagos State. Major developments scheduled to open include the 48,000 sq metre Twin Lakes Mallin Lagos, under development by UK private equity firm Acti, and the 40,000 sq metre Abuja Capital Mall, part of the Slbn Abuja World Trade Centre which is expected to reach completion before the beginning of 2019. Thereisalsothe 7000 sqmetre Central Office Park, located at Novare’s mixed-use development in Abuja, as well as the 6000 sq metre Oshogbo Mall planned ‘to open by end-2018, which will be Osun State's first enclosed formal retail centre, SECONDARY MARKET: Nigeria’ retail market insec- ondary locations continues to struggle with shallow ‘tenant pools and reductions in the expansion plans of existing retailers. According to estate intel, there ‘were no new deliveries recorded in the secondary market during the fourth quarter of 2017, but due to the subdued take-up of retail space, rental rates Continued t fall, without increases in supply. Average asking rates for spaces ranging 100-200 sq metres dropped to $27 per sq metre per month, down from the $30 in the third quarter of 2017. Macroeconomic volatility, oversaturation and lim- ited tenant demand will ikely cause developers to Update their strategies moving forward. Estate intel Realpace rey an erage of 8 anny From 200892017 ‘Bloomberg Terminal Resarth Homepages OBCRGO> etwoan 2014 and 2017 the cour ateaerod Shr worth fimertentin the formal real ctr reports that retail rents, which average $55 per sq ‘metre a month nationally, have become increasingly unaffordable in the wake of the country’s currency crunch, Subsequently, vacancies in major retail cen- tres rose by approximately 47% in 2016, This means that future retail developments will likely be smaller and increasingly focused on cater- Ing to specific neighbourhoods, with emphases on accommodating basic needs like groceries, pharma- ceutical products, services, white goods, food and essential fashion, rather than large-scale, mixed-use projects and regional shopping centres, Develop- ‘ments lke these would offer lower rents and be more attractive to tenants, with estate intel estimating ‘they will average between 7000 sq metre and 13,000 sq metres, whichis roughly half the size of traditional large-scale Formal retail developments in Nigeria. OUTLOOK: Although wholesale and retail trade growth diminished inthe first quarter of 2018, con- sumer confidence remained low and formal retail vacancy rates stayed elevated. Nevertheless, Nige~ Fia's retail segment retains considerable mid- and long-term growth potential. When global il prices rebounded to $80 per barrel in 2018, the foreign ‘exchange crunch gradually began improving and macroeconomic stabilisation is expected to continue. ‘As a result, consumer sentiment and purchasing ower should improve within the next few years. A potential shift away from large-scale formal retail developments and towards smaller neighbour- hood shopping centres will also support industry growth, possibly helping to guide more Nigerian Consumers into the formal retail space. Evidently, there is significant scope for further development. Low levels of formal retal penetration, combined wwith steady and continuous population growth, will ‘encourage long-term retail development, despite ‘more immediate challenges such as market satura~ tion and wavering degrees of consumer confidence, [THE REPORT iprin2tts ‘ue tothe high vacancy rates at major ret centres. future retail ‘developments wil ety fecuson eating to specific neighbourhoods ad meeting basic needs‘Te authorities have moved toimprovethe e-commerce ‘operating vironment, vith the Consumer Protection Counc announcing new guidelines in early 2018. In March 2018 the ‘e-commerce market was valued at $13bn Between 2013 2nd 2018 mobi temeteubeierhip anoxia E-commerce evolution. Five guiding principles to increase consumer protection Nigeria's e-commerce sector holds considerable potential for future growth, with sales set to double between 2016 and 2020. n recent years major At can e-retallers have established operations in the country, with Zinox Technologies recent acquisition oF Konga highlighting the sector's growth potential and attractiveness to foreign investors, However. these companies face considerablechal- lenges, including cybersecurity concerns and diffi culties with cash-on-delvery, which is preferred payment option for many. Legal reforms aimed at improving consumer protection may help in the short term, but further expansion of broadband internet and motilepayment platformsremsin critical components of long-term industry growth MARKET SNAPSHOT: In March 2018 jumias annual Nigeria Mebile Report apprenimatedthat the countrys «e-commerce market was valuedat $13bn. Accordingto Juma, the total number of users accessingits website Varobile phone rose by 11% in 2017 to make up 79% of total visitors. Site visits from laptop users fell to. 18% over the same period, down from 28% in 2016. Speaking atthe report launch, Juliet Anammah, CEO of jumia, stated that this trend has been supported by the rising supply of affordable devices, a growing market for secondhand devices, gradual adoption of online payment platforms and increased use of social media sites. The Nigerian Communication Commission reports that mobile internet subscribership nearly ‘tripled between May 2013 and May 2018, increasing from 38.1m to 103.2m users. Nigeria is home to Africa's top three e-retallers: Jumia, Konga andj In Febr vary 2018 Zinox Technol gies announced ithed acquired Konga ina surprise deal, andin April 2018, Konga and e-commerce firm Yudala announced amerget. The new entity isoperat ing under the Konga name and aims tobe profitable by 2020.Growth projections supportthis goat $1 9bnin online sales were made in Ngeriain 2016, and e-sales ‘wamxfordbusinersroepcom oomtryrigera are forecast to double by 2020. Local media reports have estimated that Nigeria's e-commerce segment could be valued at over $50bn by 2027. (CYBERSECURITY CONCERNS: Thereis considerable scope for expansion of online payment platforms to drive e-commerce. Juma’ study found that 70% of Nigerians prefer to pay with cash on delivery, while 28% use credit or debit cards and only 12% use mobile ‘money platforms. Thishas challenged e-retailers, and some companies lke Konga have stopped offering the option to pay with cash on delivery, owing to frequent cancelled orders and rising delivery and security cost, Gybersecurity concerns also shape consumer pref- erences for payment methods. In March 2018 the Consumer Protection Council (PC) said that 70% of Nigerians are concerned about the safety of online transactions. Te Nigerian Interbank Settlement Sys- ‘tem recorded 1461 cases of electronic fraudin 2014, ‘amounting to losses of N6.2bn ($20.1m), while banks, ‘other financialinstitutions and mobile payment oper- ators reported 946 fraud cases resulting n losses of NSba ($16.2m) in 2015. According ta the Ministry of ‘Communication Technology, the country loses approx- imately N78bn ($252.2m) to cybercrime annually. ‘CONSUMER PROTECTION REFORMS: The autherities hhave moved to improve the e-commerce operating environment, and in March 2018 the CPC announced ‘new guidelines for e-commerce platforms. The ‘uidelines. which are designed to improve consumer protection, facus on five quiding principles, includ ing establishment of a dedicated customer service apparatus: fll disclosure of any terms, conditions, or restrictions on marketed products; air and trans parent advertising practices timely delivery.and con- sumer privacy and data protection. Babatundelrukera, director general of CPC. told media that the comis- sion plannedto engage with industry representatives to promote and develop the five guiding principles, paving the way for sustainable long-term growth,Oise ngoooi Unique engagement Olaide Agboola, Managing Partner, Purple Capital, on attrac ing investment and developing the sector What potential do you see for developing the retail market post-recession? AGBOOLA:Since the economicrecovery beginning in the second half of 2017, the retail and real estate sectors are attracting mora interest from interna- tional investors again. The Nigeria Autonomous FX Window, launched in Apri ofthat year by the central bank was also very much responsible fortis racov- ery. However, the retail sector tooka hit during the recession, with several players putting prajects on hold, Moving forward, theretail challenge in Nigeria willcentre around the ability ofrvestors to provide anaffordable experiencetto customers, while ensur ing good revenue streams for retailers In addition, obstacles wil remain developing etal infrastruc ture when it comes to finding land and getting the right approvals and titles: however, public private partnerships, like those being encouraged by the Lagos State government. offer a good way to attract private sector participation and funding, What are the benefits of district malls? AGBOOLA: District malls such as the Maryland Mall in tkeja are especially advantageous in a country like Nigeria. By focusing on smaller assets in these areas, developers can also focus on bringing retail infrastructure closer to customers, Its important for foreign investors to understand that despite the fact that there is huge potential in retail, strategy focused on opening big malls and retail complexes might not be suitable for the local market. Hence, investors need to adapt thelr strategy to the market, ‘where urban landis scarce and people's disposable incomes are still recovering from the recession. Howcan mall developers and retailers providea better experience for their customers? AGBOOLA:A Key factor affecting customer experi- ences a mall's tenant mix with retailers being the Bloomber Terminal Research Homepage OBGRIGD? main reason why customers visita mall, However, theideal mixis determined by a delicate balance of location, demography, economy and customer pro- file. What remains a constant feature in sustainable ‘mixes is that each demographic is wall catered for, ‘especially n terms of entertainment. A focus on tenants that match Nigeri’s consumer profile would improve the customer experience greatiy. By creating something that everyonein the family can enioy, retail centres can make themselves the default choice for Nigerians who are thinking of what to do and where to go. By providing fun physical activities lke roller skating, bowling and play centres, the youngest family members are attracted to the mall, a group which possesses significant benefits for the sector given that femily visits revolve around them. Young adults, meanwhile, cen betargeted with restaurants, bars, cinemas and Innovative activities suchas virtual reality stands. n short retail centres need to engage customers in a unique way. How do you view the challenges presented by «gross capital formation for the economy? AGBOOLA: Gross capital formations majorissue forthe econamy. Nigeria struggles to attract private foreign capital, especially in a context where the private sector is competing against the government fort. Asa consequence, deals securing over $20m are stillrare. In adcltion, many local businesses ack the most basic corporate governance standards to attract foreign capital, especially when it comes to finance and accounting. Furthermore. in terms Of doing business, Nigeria presents 2 number of challenges due to inadequate infrastructure and heavy bureaucracy. Together witha lack of definitive industry datain circulation, investments cen be more difficult to evaluate and justify, However, Beyond these challenges lies the significant opportunity and value-creating potential ofthe African market. 208