BY VICTOR ADAR
The fall of one of East Africa’s top retailer was not only a wake up call to other retail sector players but also to tenants and developers. Nakumatt’s story is similar to that of Uchumi supermarket some ten years back. It started with billions of debts, delayed salaries, empty shelves, and then, closure of several branches. Well, Nakumat is gone forever, so, it seems.
This has meant that landlords must change certain things like offering better deals based on either long-term, or short term leases. Perhaps tenant negotiations with landlords can go a long way. But how are the negotiations playing out? What does the fall of one of East Africa’s top retailers mean for the local and regional market? How are landlords adapting and how does this affect the plans of existing and new entrant retailers?
The question from experts has been about what strategies can be used to retain tenants whose businesses majorly revolved around Nakumatt’s considering fall of sales as traffic dwindled with the retailer’s fall. Giving discounted rates to tenants who would like to do their business for over five years can most likely lighten the cost burden that exists when a major tenant is unable to pay rent and exits.
According to Robert Broll who is a lease consultant at Broll property group, there are still more and more opportunities in the retail sector despite the challenges. Specialising on retail leasing and development, Mr Broll believes that it is over for Nakumatt and that it is time for tenants and landlords to re-evaluate themselves.
“People will change their shopping style,” he said in a quick interview during the East Africa Property Investment Summit that took place in April. “When the Kenyan consumers start shopping from other stores you’ll see a new wave of development. You can’t drive to Garden City to just buy milk and bread when you know too well there’s traffic. Kenyan consumers will change. People will prefer to drive or walk to a small shopping centre in their neighbourhood.”
To Broll, neighbourhood malls with number of stores ranging from 20 to 50 is where big money is, and the falling giants have no impact on the growth of retail sector at all. He says that what landlords ought to do in order to strengthen and improve the retail sector market is to place more emphasis on convenience, but not what to do after a tenant who used to write big cheques leaves the scene. This includes looking into things such as close access to trains, buses and taxi’s, and whether consumers are getting the products that they need on a day-to-day basis and in a convenient environment whereby they can easily access the centre.
From a developer’s perspective, there is no cause for alarm if one retailer ships out. The race for space is still on so much that just one retailer moving out does not really paint the market black. Actually, retail segment does not care who you are. And Nakumatt must be the latest player to prove this right, an indication that retail segment follows a certain path that if you deviate from, things will just go south. The point is; when you exit the market, others will get in.
But despite the fall of the giant retailer, new entrants like Carrefour, Game, Shoprite, Food Lover’s market and Choppies will obviously grab the opportunity to change the way shopping is done. Not to be ignored is also the viability and investment cases offered by the convenient focused retailers like Eastmatt, Naivas, Tuskys…
An ideal mall measures size 20 to 50,000 square metres with a number of stores ranging from 75 to 150. They are usually located close to major highways or suburban arterial roads, and boast of minimum of one major anchor tenant. Such a mall is classified as a regional mall, and will often have more than one anchor tenant and a number of slightly smaller sub-anchors.
Then there is another class of malls called major fashion chains, which on the other hand offer space for casual dining and fast food, family entertainment, cinemas or gyms, banking facilities whose tenant mix is mainly focused on comparative shopping for fashion and household items. The average dwell time is less in fashion chains as compared to a regional mall – customers walk in and leave relatively quickly and visit a smaller number of stores.
In most cases, regional malls fulfil the needs of the community as well as the wider catchment area, based on a variety of different stores. This is simply because focus is on customer retention and increased dwell time whereby longer stays means is that money is being spent in one way or another.
These retail stores are typically anchored by tenants which could be a one major grocery store, pharmacies, hair dressers, cellular stores, liquor outlets, hardware, florists, fast food and cafes. Should a customer be interested in doing a financial transaction, Automatic Teller Machines of various banks are present but not necessarily full line banks.
Experts say that there is no need for tenants to exit certain malls. Solution is to engage their landlords on a reduction in installation and fit out costs. It’s not cheap to do interior design in a new shop. You need quality shelves, counters, Internet, CCTV installations, wiring, among other things. When you add up the cost of rent, employee salaries, and overheads, the cost becomes huge. Once you have defined the targets that you want to achieve, a falling retailer however big it is, has no bearing on your business.
Big malls verses small malls
Today, big malls are being pushed out as small malls are getting in, showing that for retailers to thrive and reach down to a big number of consumers, a mix of traditional stores with convenience stores is the way to go. There is strong demand for convenience stores, though. These stores are usually located on a suburban street or minor collector road.
Or, you can find them on the periphery of residential and urban areas. And customers, if not able to just walk, will generally need to rely on vehicle transport to access the mall, be it private or public. Try to picture places like Imara Daima, Umoja, Embakasi, Kitengela… Most of the people who live in those areas do most of their shopping in mini supermarkets within estates if not at Greensapan or Southfield mall.