Kenya’s developing retail market makes way for global brands

An artist's impression of the Two Rivers Retail Centre in Nairobi, expected to open this year.

An artist’s impression of the Two Rivers Mall in Nairobi.

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Oxford Business Group’s (OBG) The Report: Kenya 2016 says that the rising urbanisation levels and and increased disposable income are likely to fuel growth in Kenya’s retail sector, and that this demand will drive the construction of floor space.

According to the report, “Over the past five years the average value of consumer spending has risen by as much as 67%, making Kenya the continent’s fastest-growing retail market.”

OBG cites real estate company Knight Frank’s 2016 Global Cities study, which says that from 2016 to the end of 2017, a further 120,750m2 of retail space will be added to Nairobi.

The report explains, “The rise in capital investment – combined with encouraging fundamentals, such as an urban population that the UN expects will rise by 2.8 [million people] over the next five years to reach 14.7 [million] by 2020 – has led to the country being singled out as a hot prospect in several recent publications.”

Compared to other African markets, Kenya’s formal retail penetration rate – which ranges from 25% to 30%, according to KPMG’s African Consumer and Retail Sector Report 2016 – indicates a positive avenue for international retailers, as the market becomes more formal.

This is the second-highest in sub-Saharan Africa and, “Places the country at roughly half the level of South Africa, where formal retail is estimated to stand at 60% of overall activity, but twice that of Nigeria, Africa’s largest economy,” says OBG.

Opportunities in the retail market

TFG (The Foschini Group) is one of the latest fashion retail entrants, with the opening of its first store, jewellery brand Sterns, at the Junction shopping centre in September. TFG consists of a portfolio of 22 retail brands across lifestyle and merchandise categories.

The group has 3,000 stores, with 8.3 million customers in 31 countries and revenues of R21.1bn ($1.4bn) for the financial year ending March 2016. It plans to open 3 more stores (Foschini, Markhams and Sterns) in Kenya during the 1st quarter of 2017.

According to Manie Maritz, TFG’s director, “TFG sees Kenya as a good investment destination because the retail environment, growing middle class and infrastructure in Kenya are relatively well developed compared to other east and west African countries. Our entry into Kenya was originally planned for October 2015, but the delayed opening of the Two Rivers Mall meant we had to adjust our plans and find alternative locations to open our first stores.”

The Two Rivers Mall is set to become east Africa’s largest, and has targeted international brands, as Dinfin Mulupi wrote in April last year:

French hypermarket chain Carrefour is the anchor tenant for the Two Rivers Mall which has also attracted Austrian jewellery brand Swarovski and health club chain Virgin Active. [James Mworia, CEO if Centum, the investment firm responsible for the mall] says 43% of the lettable space will be taken up by international retailers, adding this is one of the project’s key differentiating factors.

Although big retailers took a longer time arriving at their decisions, he explains it was not difficult to convince those who already had an interest, into taking the final step of coming to Kenya.

‘The per capita spend is fairly high [and] a lot of those retailers already have Kenyan customers. The challenge for them is getting the right entry point into the market. For Carrefour, [for instance] the challenge they always faced was that our malls were too small,’ says Mworia.

TFG’s Maritz explains, “The African continent is under pressure due to the depressed commodity prices and the recent drought. TFG’s investments in Africa are made with a medium- to long-term view. Therefore, our target remains to have around 250-300 stores in other African countries outside of South Africa by 2022. Our strategy in the next five years is to build critical mass in the countries we are already trading in. The company’s pace of expansion into Kenya will depend on the performance of the new stores and the availability of retail space.”

Some of the other international fashion brands opening in Kenya include LC Waikiki – a Turkish clothing store – and Austrian jewellery brand Swarovski, and those that are there already include South Africa’s Woolworths, Truworths and Mr. Price.