The Garden City mall in Nairobi. FILE PHOTO | NMG
Over the past few years, the hype of emerging African middle
class has made headlines across the world. The Harvard Business Review
makes the point that consumer spending power in Africa has risen from
$470 billion in 2000 to over $1.1 trillion in 2016.
In Kenya we have seen investors angling for a piece of that pie evidenced by the rise of the mall economy.
Kenya
has about 53 malls of which about 30 are in Nairobi; another 19 are
under construction. This mall obsession begs the question as to whether
the aggressive growth of mall space is sustainable.
HBR
states that some multinational companies (many of whom sell products in
malls) are finding that their business in the region is
underperforming. In a survey of 20 senior executives working in Africa,
six said they struggled to hit revenue targets.
So,
what’s going on? There are two sides to this story. On one hand, yes
it’s true that growing incomes have increased spending power and some of
that will be directed to spending in malls.
Some
consumers prefer the setting and security of malls as they can let
children wander freely, buy items that probably cannot be found
elsewhere (think golf equipment or high quality makeup) and enjoy the
variety of products on sale in a mall space.
Also as
Johnson Nderi from ABC Capital points out, supermarkets in malls also do
well because of the convenience, variety and relative affordability of
goods offered there.
There is also the Kenyan customer who enjoys the exclusivity of
the mall experience and feels that money spent in a mall is money well
spent because the experience simply cannot be found anywhere else.
Demand for shopping malls will continue to exist.
On
the other hand, according to the Deloitte’s 2015 African Powers of
Retailing report, approximately 90 per cent of retail transactions in
Africa occur through informal channels.
Why is
purchase in the informal economy so strong and how does this impact
malls? There are several factors that inform purchase in the informal
economy; the first is quality and variety.
For
example, most Kenyans prefer getting fresh food items from informal open
air markets, not supermarkets, and malls because there is a feeling the
produce bought in open air markets is fresher and thus of better
quality.
Most Kenyans buy clothes from informal
second-hand clothes vendors because the variety and quality of products
on offer there often cannot be matched by shops in malls at that price
point.
This leads to the second issue which is pricing; malls have underestimated how sensitive Kenyans are to value for money.
Kenyans
don’t see why they should pay for expensive mall rent added to the
purchase price of goods bought in malls. Why are we paying for the rent
of stores in shopping malls?
Kenyans are also
ingenious in getting value for money. For example, Kenyans prefer to
search online for furniture or go to a furniture shop in a mall and then
go to an informal carpentry outfit to get a replica made at a fraction
of the cost.
Why pay the full mall price when there are alternatives? This purchase psychology eats into the appeal of shopping in malls.
Unpacking the spending habits of the African middle class and the psychology that determine that spending is complex.
Sadly an oversimplification of this complex mind may be leading to some poor investment decisions.
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