Why Africa is a battleground for overseas online retailers

Posted on November 19, 2016 12:56 am

It was just over a decade ago described as hopeless continent but thats not the case anymore. Recent developments by international brands and retailers rushing to enter Africa belie the claims of some large African retailers that market conditions are tough and shoppers are leaving bricks and mortar stores for online retail.It is poor strategic planning by traditional African retailers that has created these opportunities for new overseas entrants. They have failed to see that changing conditions require a focused approach to appealing to certain segments of the market. Instead they continue to try to please everyone.While new retailers like Walmart are entering the African market for the first time, established retailers are struggling to remain viable.A new study has shown that in Nairobi Kenya, pockets of retail space are experiencing long vacancies, unable to find new tenants who are willing to take the risk of operating in a fast changing and unpredictable future.A recent survey revealed that South Africa retailers are growing revenue slower than their international peers.The study of 8 South Africa retailers found that sales growth was 6% for the year ending 2015. This compared to 8% for the international comparison group.However, African retailers enjoyed higher gross margins compared to the international group. This could be that the international retailers are spending more on how they market to their key market segments.The survey also found that African retailers were far behind their retail peers in grasping the emerging online opportunities. Hence local retailers were also facing increased competition from overseas retailers which had more attractive online offers.

Shopping habits are also changing. Africa consumers may be increasingly buying online and looking at value for money, but they are still willing to pay high prices for products and services that fill certain experiences.People mix where they shop to satisfy these various experience needs, including possession expediency, social and psychological needs.It is hard in my view to make sense of the many changes that are taking place in the African retail space. While there’s been an increase in online shopping, which has led to a reduction in the demand for certain traditional retailers, there is still a high and growing interest in specialist retail spaces.There’s a broader global shopping mindset, which has led to more competition between retailers. Shoppers can search and access products at whatever time to suit their lifestyles. However this internationalisation has also led to networks that give retailers access to more favourable, cost effective and reliable products and product components.Also, product life cycles are shorter, stimulated by more rapidly changing consumer needs.These changes are disrupting traditional retailers that have the responsibility to provide consistent returns to shareholders.Traditional retail approach involves a large physical space near a big population, filled with a large range of products or services and the shop is open regular business hours and is staffed with people who are equipped to provide minimal service sufficient to expedite the sale of available floor stock.

In Nigeria, recent studies show there are the problems with traditional retail approach such as costs and highly inefficient, holding stock just waiting for those who may wander in to purchase products during opening hours. Most of them do not offer the high levels of service and product information that modern shoppers demand. They also cannot offer the depth of product range and information that discerning consumers require.To be successful in Nigeria’s market, traditional retailers need to do far more strategic planning, including properly positioning themselves to suit the market segment they will target.Traditional Kenyan retailers are still operating under the old expectation that they can be all things to all people, waiting and hoping for more customers to patronise their inadequate offerings.But consider the more successful retailers like Nakumatt from Kenya and Shoprite from South Africa for instance, that are far more advanced in their strategic positioning. Nakumatt makes no apparent attempt to divide the market along the lines of demographics, psychographics or product use, while Shoprite segments the market along demographic and lifestyle lines.South Africa’s Game brands itself to focus on being a leading edge young fashion retailer offering value for money and specifically targets 20 – 35 year olds in the value end of the fashion market.And Game positions itself as a department store with a wide product range, but with low levels of customer service, it uses discounting and sales events as a way to entice customers. It is increasingly becoming more difficult to be all things to all people as Africa consumers are becoming more demanding about what and how they purchase. Competition has become global and highly effective in building loyal customer bases.This is what branding and positioning needs to focus on. Successful international retailers going to Africa know this, knowing exactly what their customers wants and when, and then targeting them, and then targeting them with attractive offers they find hard to resist.

Contador Harrison