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The Current State of Retail in Kenya

Sun, 07 Mar, 2021

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Business as usual has experienced a disruption like no other in the past few years. Retail businesses in the country have witnessed a continuous shift in the landscape on multiple fronts. In the recent past, successful homegrown retail stores such as Nakumatt and Uchumi which enjoyed the lion’s share of customers, with smaller retailers fighting for scraps, spiraled into depths of bankruptcy and economic oblivion. The landscape shifted to smaller retail stores who became leaders in the market. This too was short-lived. For a sector which contributes to five percent (5%) of Kenya’s GDP and employs hundreds of thousands of people, it is imminent to understand what the current state of retail in the country is.

Sector Overview

Prior to the current condition, GDP growth boosted disposable income for countless urbanites. Increase in household incomes fostered consumption and heightened expenditures. The overwhelming feeling of having deep pockets translated monetarily well for retail stores. In 2016, private consumption contributed to 79 percent (79%) of Kenya’s overall GDP. Growth in real estate investment led to the rise of mixed-use developments and residential malls with anchor tenants mainly being retail stores like Nakumatt and Uchumi, then later Naivas and Tuskys. Nakumatt’s exit paved the way for Carrefour in those same locations.

Consumers’ preferences and tastes have changed over time. Globalization introduced the market to endless varieties that were welcomed by a generation with generous disposable incomes. As the modern saying goes, a ward of cash in hand was worth a day at the mall; and this trend continued in an upward trajectory therefore maximizing the retail industry. Little competition and minimal overlap in past retail stores operation bred comfort for those giants. Rapid expansion of chain stores, thin margins, high borrowing costs and poor capital management led to the downfall of Nakumatt and Uchumi but paved the way for smaller retailers; Tuskys, Naivas and Ukwala to save the day. Unfortunately, Ukwala and several Tuskys branches have since been shut down.

Current State of Retail

With Nakumatt’s inevitable downhill tumble, international retailers moved into the scene. In 2016, Carrefour, a retail store owned by a United Arab Emirates developer stepped in to fill Nakumatt’s giant shoes. The first store was located at The Hub Karen which was quickly followed by a second one at Two Rivers. New players in the market equated to a definite struggle for local retailers.

Quickmart stores owned by John Kinuthia's late family is the last of the local stores with multiple store chains able to compete with international entrants.

Unfortunately, new comers are not fairing on well with many witnessing thin margins and heavy expenditure on maintaining real estate. The difficulty to maintain space in Kenya's retail market cowers multiple potential players. The current state of retail is faced with:

Pandemic Uncertainties

Pandemic anxieties have worsened an already dire situation in multiple ways. People losing their jobs and clocking into survival mode means less time and disposable income. Unplanned purchases from unscheduled walk-ins have reduced monumentally because of social distancing regulations and retail store expenditure into customer safety has become priority. People are scheduling their times at malls and other mixed developed experience hence slashing traffic significantly. Shoprite and Choppies are set to exit the East African market citing unprofitability and with the pandemic adding fuel to a worldwide economic wildfire, this comes as no surprise.

Poor Planning

New companies entering the retail space must be careful not to make the same mistakes made by previous larger retailers. Rapid expansion into multiple locations and imbalanced supply chains points to poor planning. Newcomers need to familiarize and strategize accordingly in order to hack it in the Kenyan retail market. A strict code of ethics, good leadership and governance are key components when setting up in the Kenyan market.

Understanding the current state of retail is the key to ensuring that the buck stops at walking in blind. In order to put an end to this vicious cycle, great planning in a bid to pull through the pandemic and beyond is important. Nakumatt’s downfall was a cautionary tale that ended with this country’s Cinderella up in flames but its success can be used to navigate the Kenyan retail landscape.