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What does the failure of Woolworths say about Nigeria?

For foreign companies looking to expand their business in Africa, Nigeria is a country that has certainly been brought to their attention. In recent years the West African country has seen a rush of multinational companies enter the space. Nigeria has the largest population in Africa, with a growing consumer class which offers an attractive motivation for retail companies to expand in the market.

Woolworths has announced it will pull out of its three stores in Nigeria.

Woolworths has announced it will pull out of its three stores in Nigeria.

However, the announcement by South African retailer Woolworths in November that it would be pulling out of its three stores in Nigeria, a mere year and a half after it first entered the market, questions how lucrative the country is for retailers.

The reasons cited by Woolworths were high rental costs, duties and supply chain challenges in Nigeria.

“When an investment no longer generates viable returns, difficult decisions have to be made to contain costs,” CEO of Woolworths Ian Moir said in a statement. “The Woolworths clothing and general merchandise business in Nigeria has not been successful, despite several attempts to improve performance.”

The attraction of Nigeria

According to EY, Nigeria is one of the world’s rapid growth markets, which the firm defines as countries with economies and populations of a certain size that display strong growth potential and are, or could be, strategically important for business. This, alongside the prediction that Nigeria will overtake South Africa as the largest economy on the continent with the rebasing of its GDP this year, is enough to turn investors’ heads.

Both Europe’s largest retail network, Spar, and South African-based Shoprite Holdings has also been aggressive in their expansion in the market.

For example, according to Resilient Africa, a joint venture between South African companies to build shopping malls in Nigeria, Shoprite will secure the anchor position in 10 of their malls.

The lifting of an eight-year ban on the import of garments in 2011 has also opened the door to foreign brands. The move has seen South African clothing retailers, such as Mr Price, Pep, Truworths and Foschini enter the market, with the Edcon Group planning expansion this year with its brand Jet.

Holden Marshall, managing director of Resilient Africa, told How we made it in Africa that the interest they have seen from South African retailers looking to secure spots in Resilient Africa’s malls in Nigeria has been quite substantial, including from the Edcon Group, Foschini Group, Mr Price and Massmart.

“At this point probably 40% of our malls will be occupied by recognised South African brands. And about 60% by Nigerian established retailers but most of them trading under master franchise agreements with European brands… you know, the Pumas, the Nikes, the adidas… The major sort of UK/European fashion brands are starting to establish themselves through master franchise arrangements with existing Nigerian retailers.”

Carlo Matta, CEO of Laurus Development Partners, a real estate development company focused on Ghana and Nigeria, said South African retailers are generally important leaders in Africa’s development.

“They are the first movers. They are brave, I have to say, [and] they understand the African risk better,” he said.

Woolworths’s failure: Is Nigeria really lucrative for retailers?

According to Bloomberg, while Woolworths is withdrawing from Nigeria, the company plans to continue its expansion into other African countries. This provokes the question: why not Nigeria?

Dianna Games, CEO of Africa @ Work, a South African-based company that aims to facilitate and improve business in Africa through the provision of research and networking opportunities, said there are a number of factors that led to Woolworths’s failure in the challenging market of Nigeria. However, she believes these failures are more likely due to poor business strategies than simply Nigeria’s difficult operating environment.

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  • Bolaji

    Where in Nigeria can I get AU underwear( men’s boxers)usually marketed by Woolworths of South Africa since Woolworths has closed shops here.

  • Alex

    The failure of Woolworths in Nigeria should be an eye opener for all the multinational brands rushing into Nigeria without adequate research on the people, customs, spending patterns and consumer preferences.
    To start with, the average Nigerian is a trend setter, who likes to dress well and be admired, woolworths concentrates on mass clothing apparels that are a huge turn off for Nigerians, no one wants to be seen wearing the same thing someone else is wearing, hence Nigerians will rather buy second hand clothing than buy a woolworths shirt that 100 other people have bought.

    The issue of high rental costs, duties etc are a normal with investing in business in Nigeria, the truth is that woolworths was not making sales and sales generate revenue which keeps a company profitable, this is coupled with the fact that Woolworths did not deem it fit to plan and execute a marketing strategy that will work in Nigeria.

    Nigeria is an unforgiven business environment, it captures the essence of high risk, high reward, if you don’t believe me ask MTN communications.

  • Franklin Nnebe

    Woolworth is a lesson for any investor that fails to do basic consumer research about any market. Woolworth just saw a densely populated Nigeria chock full of informal markets and thought that all it took was displaying their expensive product in tasteful malls and the cash registers would be ringing non-stop like it does in South Africa.

    But they never took time to understand the Nigerian consumer’s income, tastes, preferences, shopping habits or differentiation. The consumers Woolworth targeted (high income) are 6 hours by flight away from Harrods and Marks and Spencer’s in London and 11 hours from New York’s Fifth Avenue. They know where to get good clothes at far better prices than Woolworth’s offerings.

    Now South African retailers are talking about discount stores for the Nigerian mass market. Here they have a chance to compete on quality and scale with all those individual Nigerian traders that ply the Dubai or China routes bringing back poor quality product sold at double the price. But they would be better off setting up large format standalone stores near Nigerian markets and not paying ridiculous mall rental rates.

  • Even this talk of malls and the taste for western shopping is saddening. When do we start seeing marketing and innovations for Africans. There are almost 1 billion Africans on the continent. Even the marketing in these Mall-type shops is all Western, white faces, western ideals, western aspiration. Just because wealthy Nigerians shop in Europe doesn’t mean that those brands signify the same things to them as Westerns.

  • Barbara

    The Woolworth’s store in Accra, Ghana seems to be an example of the company’s poor business strategies. It is located in a sunken piece of land on a busy thoroughfare without an easy entry or exit. A car has to drive down an extreme (though short) embankment to get to the store which is located in a small group of other no-name stores. It is hazardous to drive out of the parking lot onto this busy street against speeding cars, buses, and taxis. There is very little advertising — at least in the Daily Graphic which I read regularly; it is the country’s major newspaper. I am from the USA and the above article is correct in that I, too, associate the name “Woolworth’s” with a low price five-and-dime store that I thought went out of business in the 1960s. If this was their “strategy” in Nigeria, this is the likely cause of their failure.

  • M Narayanan

    Instead of mega investment in One Country, or a mega mall/s, feel it is better to open a smaller retail sales point in prospective areas of a Capital City/upcoming towns in preferred Countries of Africa. These Retail Sales Points may be increased gradually according to the market requirements and may be supplied from a Central Warehouse or substores in the region as may be appropriate

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