Battle for shoppers goes online

BY LUKE MULUNDA On November 25th, the US and other markets around the world marked Black Friday, the shopping carnival that signals the end of thanksgiving period in the United States. Since 1932, it has been regarded as the beginning of the Christmas shopping season in the US, and most major retailers open very early and close late with promotional sales. This culture, like many other American trends, has since spread across the globe. In Kenya it was activated a few years ago by online retailers, such as e-Bay and Amazon, who would spring offers to Kenyan customers. The Black Friday reality hit home last year when local online retailers made it such a big deal. For the first time, many Kenyans discovered that Black Friday was not a movie trailer but a shopping bonanza that came with huge discounts and enticing offers. Some Chinese investors even launched a local online shop, Chinabuy.co.ke, which spearheaded the Black Friday movement in 2015, and others such as Jumia and Kilimall joined the bandwagon. 107564-0ee6c3c1-a8a5-4cb9-98ad-a4bd667cf64a-dvd_2520jumia_2520design_2520campaign_2520-original-1378744830This year, Black Friday was even bigger, with more online retailers on board, in what made mainstream retailers green with envy. The competition brought irresistible offers as each online mall tried to outdo the other. This in Kenya, too, marked the beginning of the festive season of December (Christmas and New Year) which, even without Black Friday, is marked with unbridled spending and generosity as many Kenyans reward themselves and others for a year gone by. The online retail brigade presents a new challenge for traditional retailers in Kenya, including supermarkets and electronic shops. Quietly, a bruising war is brewing ahead of December and November 25th was the kick-off time.  While supermarkets are donning brave faces, online retailers are making inroads, especially among the younger tech-savvy population who are bold enough to embrace technology and buy online. Online shops are not just convenient since you can buy on your smartphone at home or while stuck in the jam or on the PC at the office. Given that they have no shops and middlemen meaning lower overheads, they often can afford to knock off bigger percentages in discounts to entice buyers. That’s where the battle lies, especially in electronics, clothing and household commodities. The main online shops are already raring to go and plan to give their offline rivals a taste of their own medicine with crazy discounts of up to 90% on select products to whet shoppers’ appetite. “Rupu Black Friday offers its biggest sale yet! Get up to 90 per cent off selected home fashion and drink deals today,” read a flash message on the online retailer’s website, with more offers for loyalty shopping credits. “You will earn points for each purchase you make, so the more you spend the more you earn.” Rival online store Kilimall announced that it had set aside 50 smartphones and 10 televisions to give away to lucky shoppers who would be required to follow certain clues to win the rewards as a pre-Black Friday promotion dubbed ‘Crazy Week’. Kilimall, which marked two years in Kenya in August, had prepared to make a splash on Black Friday especially to prove a point to its rival Jumia. Mr Victor Ma, operations director at Kilimall International, which owns Kenya’s second largest online shopping mall, said they had put in place an elaborate strategy for Black Friday and the December holidays. While keen not to give a lot of secrets, Victor says, the product selection is being done meticulously and discounts will be “out of this world”. “Aside from that we are increasing our capacity, we have expanded our warehouse and increased our delivery partners across the country,” said Victor. Jumia, the leading online shop in Kenya, had also promised huge discounts for shoppers who bought on its website ahead of black Friday as well. Even then, the battle between the big two online shoppers is ferocious. With almost similar products and brands and razor-thin margins to spare, success often depends on volumes. Kimall is strived to hit 10,000 orders per day on Black Friday and subsequent days, which would be more than double its normal rate of sales. Electronic dealers are feeling the pinch, especially those in smartphones, tablets and televisions. Irene Nyawira, who owns Elexir electronics shop in Nairobi’s CBD, says mobile phone sales have been dropping as some buyers opt for online deals. “Some people come to check new brands then go search online because the prices could be cheaper by like Sh2, 000 and that is a lot,” she said. “They only come to buy if they don’t get it online.” Most of the products sold online are also stocked by supermarkets, including smartphones, TVs and clothing. So as Christmas and New Year approach, battle lines are being drawn in a way that supermarkets may suffer indirectly by losing shoppers who go online for more affordable alternatives from different markets. But supermarkets are unfazed. Nakumatt, Kenya’s leading retailer by turnover, branch network and customer numbers, says online retailers are yet to pose a challenge but instead play a support role to the retail sector. This year, for example, the retailer recorded a 12% growth, according to Mr Neel Shah, Business Development Director at Nakumatt Holdings. nakumatt-holdings-managing-attends-to-a-customer-at-the-till-during-the-opening-of-nakumatt-garden-city“We are however not complacent and continue to enhance our marketing efforts to avoid losing out to the emerging retail formats,” he said. “Due to the limited variety of products/stocks available for sale on the online platforms, such stores will continue to play a complementary role to that played by brick and mortar retailers.” Kenya’s retail market has shown considerable expansion in recent years, driven largely by solid macroeconomic fundamentals including an average annual gross domestic product (GDP) growth rate of 5.6% from 2009 to 2014. The number of Kenyans shopping online has been growing, pushed by increased mobile phone services penetration, which is estimated at above 80%, and increased use of smartphones. On average, 50% of online customers access websites through mobile devices and the growth is fast and steady. The number of Internet/data users in Kenya has also grown by double digits to stand at 35.5 million, which in turn means 83% of the total population is online. Notably, personal connectivity via mobile devices maintains the lead at 23.7 million subscriptions, a trend easily attributable to the affordability of data bundles as network providers compete for a bigger share of the market. Africa is expected to reach 500 million Internet users by 2020, the majority of which will access Internet through a mobile device. Indeed, mobile broadband connections in Africa will reach 57% by 2020 up from 24% in 2015, according to African Mobile Trends 2016 report by Jumia released in May. The report estimates that 3,600,000 smartphones were sold in 2015 in Kenya, Consequently smartphones account for 45% of all items sold on Jumia with a notable sales increase of 244% between 2014 and 2015. The Kenyan unit further predicts a three times growth in 2016 as compared to the previous year. “These consumer results show that the mobile landscape is growing at a breakneck speed,” it says, projecting further competition for offline mobile phone retailers. Most Asian manufacturers now prefer to partner with online distributors to reach a bigger market, giving them an edge over other makers, and denying retailers the critical first-mover advantage. The next evolution for e-commerce on the continent is definitely the app revolution led by smartphone adoption and mobile broadband usage. South Africa is presently leading the number of app downloads on the continent but Nigeria, Kenya and Ghana are not far behind. There were 108 Jumia app downloads every minute in Africa in 2016 and 255% more Jumia app downloads in the first six months of 2015 than through the entire year of 2014. Even with such numbers, mainstream offline retailers expect bigger business during the festive season, egged on by a growing consumerism culture and an expanding middle class. In essence, it seems, there is enough shoppers to go round and leave most of the retailers smiling. The festive season is always a peak-trading season for retailers. Nakumatt Holdings says it has just concluded its seasonal merchandising plan for the third quarter of the year covering Diwali, Christmas and the New Year/Back to School festivities. Mr Shah says this plan features a range of exciting offers and rewards for customers. “The plan also focuses on the efficient delivery of gift vouchers,” which have become popular reward tools for corporates and individuals alike, he said. A cross section of business leaders hold that the offline retail stores are here to stay, buoyed by the entry of foreign retailers in Kenya. Mr Tom Okwemba of InvestPro, an investment research company based in Nairobi, says offline outlets remain popular as shopping malls gain currency, bringing together a wide variety of activities that attract a wide variety of people. The arrival of new supermarket chains in Kenya highlights the potential of the country’s retail sector. Nairobi – one of the largest markets in sub-Saharan Africa in terms of shopping centre floor space – has seen a number of dedicated retail properties open up in the past decade, with more than 390,000 square metres of gross leasable area already available, and a further 470,000 square metres in the pipeline. The rise in formal retail space has helped attract new foreign investors in the sector. In mid-May Carrefour, the world’s second-largest retailer, opened its first outlet in Kenya, its first in sub-Saharan Africa. The French chain – through its franchise-holder, Dubai-based Majid Al Futtaim Retail – occupies 5000 square metres as the anchor tenant in the new Hub Karen in Nairobi. Carrefour has plans to open a second outlet at the Two Rivers Mall, also in the capital, set to launch by end of this year. Another significant international entry in the Kenyan market is Botswana-based supermarket chain Choppies. In early May Choppies announced it had taken over eight Ukwala Supermarket outlets in Nairobi, Kisumu and Bungoma. Mr Shah of Nakumatt says physical retailing will continue to exist due to its experiential nature. “Customers visit retail stores for the experience, which cannot be replicated on a virtual space,” he said. “The social element of physical retailing means online retail will never kill the brick and mortar store.” Meanwhile, rising levels of disposable incomes and an expanding middle class have contributed to Kenya’s appeal among overseas retailers. The transition has been underpinned by the country’s middle class, which represents around 45% of the 47 million population, according to the African Development Bank. This figure, though, includes individuals with a consumption level of between $2 and $4 per day and those at risk of falling below the $2 poverty line, which means that formal retailers still tend to focus on the higher-income segments of the market. Global retailers are being drawn specifically into the upper end of the sector, says Mr Peter Kang’ethe, managing director of Tiger Haco Brands. “The high-end segment is attracting foreign brands as it is growing with new developments such as Garden City and other mega retail space,” he said in an Oxford Business Group report. “While these developments are primarily in Nairobi, we expect this to spread to other areas.” Kenya has one of the most formalized grocery retail markets in Africa, research shows. The supermarket retailing outside the major cities is also well developed. On the other hand, online retailers lack the strong distribution networks enjoyed by retailers such as Nakumatt, Tuskys, Uchumi and Ukwala. Also, online dealers can only stock durable goods, not perishables like grocery that provide the big volumes that supermarkets survive on. Kenya’s grocery retailing landscape is dominated by domestic retailers – Nakumatt, Tuskys, Naivas, Uchumi and Ukwala mainly. E-commerce, however, represents the most high-potential growth channel in the retail sector. According to the Communications Authority of Kenya, the number of Internet users in the country rose to 29.6 million during the second quarter of 2015 as a result of rapid uptake of new mobile data services. The authority estimates Kenya’s e-commerce segment to be worth Sh4.3bn ($47.30m).  June 2015 survey of Kenyan consumers, published by Consumer Insight, found that only 7% of respondents had shopped online, leaving considerable room for expansion – a situation that online outlets, such as Jumia and OLX, are capitalizing on.
Mr Peter Ndiang’ui, country manager at OLX, giving a talk during the olx Power Forum
Mr Peter Ndiang’ui, country manager at OLX, giving a talk during the olx Power Forum
“Kenya is an interesting market for e-commerce compared to the likes of Europe or the US because only about 35% of retail in the country is formal. As has been seen in other industries, we expect Kenya to leapfrog in the retail sector, with malls becoming more like showrooms and many retail purchases being made online,” said Mr Peter Ndiang’ui, country manager at OLX, a commodities trading site, which recently introduced fresh Irish potatoes on its menu. Online marketplaces, while targeted at consumer-to-consumer trades, are playing the role of online-to-offline transactions where micro-businesses and informal retailers that cannot afford the more expensive shopping mall footprint use the platform to distribute their fragmented inventories. But the digital revolution is unstoppable. Nakumatt says as part of its digital rollout strategy, it is at advanced stages of making its online shop a reality. “The Nakumatt Online format will play a complementary role to the existing hypermarket, supermarket and convenience store formats,” said Mr Shah.

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