Pepkor Ltd., the South African clothing retailer bought by Steinhoff International Holdings Ltd. for $5.7 billion in 2014, plans to double its presence in Nigeria with 10 store openings per year through 2018.
Confirming this plan Pepkor Nigeria's general manager, Deon Conradie, told Bloomberg last week in Lagos that the company which opened its first outlet in Nigeria in 2012, will have 31 stores by July this year. The clothing and footwear chain plans to sustain that growth rate over the next three years, he said.
In a related development property group, Resilient, one of South Africa's largest owners of platteland malls, has entered into a joint venture with Whitey Basson's Shoprite to build 10 shopping centres in Nigeria. The deal, worth more than USD85 million, also involves two other South Africa's big finance and investment organizations, Standard Bank and Group Five.
Justifying these new investment moves Conradie said "our prices are low and we cater for that middle-to-bottom market, which is the fastest growing". Woolworths Holdings Ltd., another South African retailer that targets wealthier consumers, said in 2013 closed three Nigerian stores because of high costs-to-patronage ratio.
Nigerian demand for goods other than food is expected to increase to USD110 billion in 2030 from USD20 billion two years ago as Africa's biggest economy grows and its working and middle classes seek alternatives to outdoor markets, according to McKinsey & Co. While a 40 percent fall in oil prices since June has curbed growth in the continent's biggest crude producer, the economy is forecast to expand 5 percent in 2016, the International Monetary Fund said in its April 28, 2015 report.
More than 100 South African companies are doing business in Nigeria across several industries, with the biggest investment being in the telecommunications sector." Reacting to the Nigerian-South African commercial relations South African President, Jacob Zuma, said last year, "We welcome the participation of South African business in other sectors in Nigeria as well, such as engineering, construction, media, banking, retail, hospitality, oil and gas exploration and services."
Zuma said there had also been keen interest from Nigerian businesses to invest and do business in South Africa across a number of sectors. Entry to the Nigerian market requires relatively high capital investment due to inflated rental and power costs, according to Pepkor. Steinhoff, a Johannesburg-based furniture retailer, agreed to buy Pepkor in November last year to expand into clothing and new economies.
The deal, said to be the largest purchase of a South African company in more than a decade, will create a retailer spanning three continents. Looking into the Shoprite calculations on Nigerian economy and business Managing Director of Resilient Mr Des de Beer, who has a formidable reputation for spotting growth opportunities, has been eyeing Nigeria for a while as the African country where he believes the group can best replicate its South African retail property model.
De Beer says Nigeria's population is a huge 155million but the country has only a handful of formal shopping centres. He believes Nigeria offers better potential returns than South Africa, where opportunities for new retail developments have become few and far between. "The risk in South Africa is up but the returns are down. It's time to explore fresh markets."
De Beer says Shoprite has already spent a lot of time in Nigeria and has an impressive understanding of how that market operates. "Being able to leverage off their existing skills base will significantly reduce our risk." Resilient and Shoprite's venture will focus on centres 10000m²-15000m² in size. At least 10 suitable sites have already been identified in and around Lagos and Abuja. The centres, to be built over the next three years, will be anchored by Shoprite stores.
De Beer would like to list the shopping centre fund in Nigeria once it reaches the right critical mass, a similar approach to Resilient's entry into Romania in 2007 through New Europe Property Investments (Nepi).