South African Retailers Are Abandoning Markets Outside Their Home Country
It appears that many a South African retailer have agreed that African markets outside their home country should be abandoned once they prove to be a business headache. From Durban-based Mr Price to Cape Town-located Truworths and Stellenbosch-situated Pepkor, some of the country’s best-known retailers are no longer keen on radical expansion.
South Africa has the most formalized retail industry in Africa, followed by Kenya. As such, the bulk of other markets remain informal. A good look at the countries South African retailers are exiting shows an immense lack of formalness. Nevertheless, that has been coupled with a strong mix of harsh economic realities which the chains have decided is too tough for them to keep investing in.
For instance, Mr Price has pulled the plug on the Nigerian arm of its business, citing weak economic growth and difficulties when it comes to repatriating funds and local procurement. But the specialist in mid-range clothing, sports goods and homeware is not the only retailer to have called it quits on Africa’s largest economy.
Supply chain disruptions, among other roadblocks, also forced Woolworths Holdings—one of SA’s largest designer clothing and organic food sellers—to call it quits on Nigeria back in 2013. ShopRite, another South Africa-based retailer which has about 100 shopping centers in the West African nation said in 2019 that is may close some of its stores in the country.
Mr Price’s CEO, Mark Blair, regarding the Nigerian exit said: “Quite frankly I’m not prepared to invest any further whether it’s investment in time or in money into a country that is volatile as it is. In the early days we were making money but now we just came up against too many roadblocks, whether it’s getting the money out, etc”.
Tough Countries To Be
About 10 months ago, South African fashion retailer TFG first hinted that it would be reviewing its operations in Ghana and Kenya, where it has at least six stores in each market. Last week, it finally did. The same last year, Pepkor Holdings was selling its remaining Power Sales outlets in Zimbabwe after it could not let a loss of ZAR 70 Mn loss become worse the next financial year.
TFG’s commodity cycles were in countries where government revenues are always going downhill. So you get all sorts of funny tax things coming up where suddenly the VAT rate has increased overnight or you can’t claim the input VAT and your cost of business goes up 20 percent, Chief Executive Officer Anthony Thunstrom said at the time.
Pepkor’s exit from the Zimbabwean market has a reason that is all too glaring. For the better part of the last 5 years, the country’s economic crises have mostly worsened. The devaluation of the South African country’s currency is definitely another downside, a problem whose end is not yet in sight. Devaluation of the local currency had made trading in the country difficult, Pepkor said in its financial results for the year to September 2019.
On Mr Price’s side of the trend, Nigeria is not the first market it is exiting. Last year, it halted operations in Poland and Australia. The retailer’s so-called cautious approach to international expansion across African borders has only turned up truncated for organic growth and served as a distraction from its apparently promising home market.
South Africa’s retail trade advanced 2.7 percent year-on-year in March of 2020, following a downwardly revised 1.9 percent increase in the previous month. This marked the sharpest rise in retail activity since April of last year, as the country’s strict coronavirus lockdown was introduced on March 27th
Struggling To Remain
Some South African retailers have remained more successful than others when it comes to firm presence on other African countries. Businesses such as Pick n Pay and ShopRite have managed to grow beyond borders, but they have had no short of losses, the same kind that makes its home-country-counterparts rethink international presence.
ShopRite—which however abandoned the Kenyan market in April (2020)—has faced difficulties operating in other parts of Africa in the past few years. Case in point, its operations in Angola shrank by more than 38 percent, according to its financial records for 2018 to 2019. In the first half of 2020, its sales in constant currency terms in Nigeria dropped by 8.1 percent.
Pick n Pay—which still affords to have operations in 7 Southern African countries—had its earnings outside South Africa dive by 79.8 percent year-on-year in the period that ended September 1st, 2019. Its businesses in Zambia and Zimbabwe shot its revenues in the foot, thanks to the two countries’ currency devaluation and hyperinflation.