International retailers eyeing East Africa should not underestimate local players

International retailers are increasingly expanding into Africa, angling for a piece of the continent’s growing retail and consumer industries. By 2030 Africa’s top 18 cities will have a total spending power of US$1.3tr, according to estimates from global consulting firm McKinsey & Company.

Local players will give international retailers a "run for their money", notes Broll Property's group CEO, Malcolm Horne.

Local players will give international retailers a “run for their money” in East Africa, notes Broll Property’s group CEO, Malcolm Horne.

Many have launched in South Africa with the hopes of using the rainbow nation as a springboard for pan-African growth. These include Australian fashion retailer Cotton On, British retailers H&M and Topshop, US fashion brand Forever 21, and Spanish fashion house Zara.

“The middle class is obviously driving the formal retail sector. These guys want better everything – better shops, better brands, better pricing, and they want choice,” says Malcolm Horne, CEO of commercial property services group, Broll Property.

Local vs foreign

With rising income levels, rapid urbanisation and fast-growing economies, the opportunities in most of Africa are obvious. But Horne warns international retailers eyeing the continent not to “underestimate local retailers”.

“I don’t think local retailers by any means are just going to accept these brands coming in. They are going to give them a good run for their money.”

Speaking at the recent East Africa Property Investment Summit in Nairobi, Horne shared insights on the region’s retail sector. Contrasting East Africa with the rest of the continent, Horne observed that in South and West Africa there is a greater presence of international retailers.

Leading brands Levi’s, Mango, Nike and Swatch operate stores at the Palms Shopping Mall in Lagos, while in Ghana’s Accra Mall retailers Mango, Puma and Nike have set up shop.

“[There is] great brand presence sitting in West Africa… because the consumers in West Africa like the glitter and the glamour. They like the showiness, so they will go and shop at these brands… and we are seeing more brands entering that market,” says Horne.

But he observes that East Africa has “a strong base of regional retailers that have built their businesses up over time”. The retail sector is dominated by mostly Kenyan retailers, led by Nakumatt Holdings which makes $700m in annual gross revenue and plans to become a $1bn a year company by 2017.

“[When] I walk through the Kenyan shopping centres at the moment I see a lot of branded goods, but they are obviously being imported and sold in the shops via that channel. I am not seeing a lot of branded global stores operating in this market.”

The world’s second largest retailer Carrefour is set to launch in Kenya later this year. The French retailer has signed up for space in two malls currently under construction in Nairobi.

Promoting Africa’s retail market

But even with the increasing number of global retailers coming to Africa, Horne says investors and developers need to do more to promote the continent’s retail market to global brands.

According to 2015 statistics of a survey conducted by global commercial real estate firm CBRE Group, Africa does not feature prominently in the expansion plans of global retailers. Some 40% of 350 global retailers interviewed cited Germany as their number one target market for expansion in 2015.

To attract more international retailers Africa needs quality, high-class and large-sized shopping malls. With the exception of South Africa, Horne says most countries across Africa do not have sufficient modern retail space and this presents an immense opportunity for property developers.

“There is a compelling story to build brick and mortar across Africa.”