Consumers gain as neighbourhood malls take centre stage in retail market
by CHUKA UROKO
February 17, 2018 | 2:40 pm| | | Start Conversation
In the last couple of years, the retail market in Nigeria has seen a significant shift towards the development of small sized malls in communities and neighbourhoods, making shopping experience more convenient and much closer to consumers.
Analysts say these malls, otherwise called neighbourhood or community malls, are already gaining traction with many investors committing substantial capital investing in them and getting returns.
Lennox Mall located strategically on Admiralty Way in Lekki Phase 1, which opened for business a couple of weeks ago with Hubert Stores as anchor tenant, is a typical example of neighbourhood mall sitting on small gross buildable area (GRA), estimated at 740 square metres.
The analysts explain that mall developers are scaling down the size of their projects because Nigeria’s consistently high food inflation, about 20.31 as at the last quarter of 2017, reduced discretionary income that would have ordinarily gone to retail spending.
Michael Chu’di Ejekam, CEO, Atreos, a retail investment holding platform, confirmed to BusinessDay in an interview that the economic slowdown and hash operating environment had forced mall developers to design their facilities in a way that would not cost them much money with off-taker problem.
“At the moment, investors are smart and are thinking of what are sustainable rates in the market. They are coming up with new approaches. What is in high consideration now is neighbourhood retail. Malls have come down to as small as 7,000 square metres as against large malls of 20,000—30,000 square metres,” he said.
According to Ejekam, there are three pockets of considerations that go into mall development and these have to do with the consumers, the retailers and the investors, pointing out that the reality of the Nigerian consumer is that an average household spends 60-70 percent of its monthly spend on food and beverages consumed at home.
He said because of the challenge with power, people cannot afford to go out there and buy large stock of goods and store with refrigeration, meaning that they have to go out frequently to buy their stock.
“Again, there is low car ownership rate in Nigeria which means that shoppers cannot go far for their shopping. They want to be able to work short distances to do their shopping. All these have to influence the kind of mall that the developer has to put up. He has to create something within the neighbourhood,” he advised.
Ejekam noted that the investor was also challenged by the high construction cost in Nigeria which, he said, was times 2.5 percent higher than what it costs to develop a mall in South Africa. “What this means is that a $40 million mall in South Africa will cost times 2.5 percent more in Nigeria,” he said.
But, in spite of all these, the retail market in Nigeria offers lots of opportunities to investors who, Ejekam advised, must be savvy and patient with long-term outlook of the market that would enable them to ride out down cycles, which were inevitable in any economy.
“Unlike South Africa where the retail market is over 70 percent formalised, the retail market in Nigeria is less than 5 percent formalised; there is a large population growing at 2.7 percent annually; there is also a sizable consuming class and urbanisation is high at 4 percent and the demographics is encouraging, making this market a compelling investment destination,” he assured.
Ayo Ibaru, director, Real Estate at Northcourt agrees, disclosing that towards the end of Q3 2017, a leading Japanese retail brand, Miniso, took up space in Lagos at Circle Mall, Festival, Ikeja City, Maryland, Novare and The Palms malls with hope of building on its 2016 turnover of $1.5 billion, up from $750 million 2015. “The retailer currently has 2,000 stores in over 50 countries with an average monthly growth rate of 80 to 100 stores,” he said.
Big Read |