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Shoprite winds up business in Kenya

skynewsbyskynews
September 14, 2020
in Business, News
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Shoprite winds up business in Kenya

shoprite outlet in Kenya

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South African retailer Shoprite plans to close the last of its stores in Kenya, as it exits the East African market after a two-year presence.
“Kenya, with three stores at year-end, has continued to under-perform relative to our return requirements,” the retailer said in its 2020 financial statements. “We expect to close or dispose of our remaining two stores in the region in the year ahead.”
Shoprite entered Kenya in 2018, hoping to take advantage of the failure of the two most dominant supermarket chains in the country. Its chief executive Pieter Engelbrecht told Reuters in February 2018 that the market was in “total disarray”, which significantly reduced the entry costs. “We could now go in and secure seven premises without paying anything other than agreed rental,” Engelbrecht said at the time.
The retailer entered the market in December 2018, opening the first of its four stores in the country. In April and May 2020, it closed two of the stores, both of which were less than a year old, and laid off staff.

Shoppers at a Kenya Shoprite supermarket

Shoprite’s move follows last year’s exit of Botswana-based Choppies, which had entered the market by acquiring a majority stake in a struggling local retailer in 2016. In April, Choppies’ ongoing exit was temporarily interrupted by a tax dispute with the Kenya Revenue Authority.
In its half year report on Kenya, real estate firm Knight Frank noted a significant drop in footfall traffic due to COVID-19 restrictions and consumer behaviour changes.
“According to Google Mobility Reports, Nairobi retail and recreation centre location pings dipped to circa -46% in April, however at the end of June location pings dipped at a slower rate to -35%,” Knight Frank said in its report.
While the drop in footfall severely impacted business for retail companies, the exit of South African retailers preceded the crisis and signalled other more long-term complications affecting the sector.
In June 2020, fashion retailer The Foschini Group (TFG) said it would also be leaving the market due to high dollar-based rentals. TFG executives also cited increased import duties, saying that combined, the high rents and duties made the Kenyan market “totally, utterly unviable.”
The Knight Frank report also indicated that there had been a slight decrease in prime rentals, but it might not be enough to save the sector in the short term. The retail and hospitality sectors, combined in government statistics, created nearly 2 million jobs between 2015 and 2019.
Surviving players in the market are adopting new strategies to survive the pandemic’s crisis, such as expanding further into neighbourhood centres and increasing their e-commerce options.The sector has also received significant private equity interest. In February, a consortium of PE funds including the World Bank’s International Finance Corporation, German sovereign wealth Fund DEG and Mauritius-PE firm MCB Equity Fund bought a minority stake in the country’s largest retail chain Naivas.
The deal valued the retailer at 20bn Kenyan shillings, more than double the valuation made during failed negotiations with Walmart-owned South African retailer Massmart in 2013. The Johannesburg retailer instead opted for a greenfield investment in the country, and has adopted a slow expansion since. In August 2020, it opened a branch of its Builder’s Warehouse in the same upmarket mall Shoprite exited in April.
The successive exit of South African retailers, which had a small but growing presence in Kenya, and reductions in workforce by surviving players will worsen the situation in the country’s labour market.
According to government statistics released in August, the country shed nearly 1.7 million jobs between March and June 2020, doubling the unemployment rate from 5.2% to 10.4%.

Source: theafricareport
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