According to the Kenya Retail Sector Report released in October 2019 done by Cytonn, the retail sector’s performance in urban cities softened recording average rental yields of 7.0% in 2019 which is 1.6% points lower than the 8.6% recorded in 2018. This was attributed to a reduction in rental rates and surplus retail space coupled with stiff competition among malls.
In 2020, the retail sector recorded poor performance as a result of the tough economic environment caused by the Covid pandemic. Major outlets were forced to scale down. Retailers such as Shoprite, Deacons and Tuskys had to close down some of their branches and even exit the Kenyan market completely. Specifically, Tuskys was facing major financial difficulties.
A Kenyan Retail report done by Cytonn in November 2020 revealed that Tuskys supermarket announced plans to shut half of its branches, 25 in number, in an attempt to stay in operation. The retailing company had a total of 52 operational branches. Tuskys faced a myriad of challenges such as financial difficulty, supplier debts and mounting rent arrears. These challenges lingered on even though the company was able to secure financial support worth Kshs. 2 billion from an undisclosed private equity fund based in Mauritius in August 2020. However, according to business daily (https://www.businessdailyafrica.com/bd/corporate/companies/tuskys-sh911m-property-sale-to-avoid-liquidation-3389290), as of May 6th 2021, Tuskys opted to sell assets in some of its branches to avoid liquidation by more than 60 creditors following delays in receiving the funding from an undisclosed Mauritius firm.
Despite this, not all was bad news for the sector. Pre-existing local and international retail chains underwent expansion. Carrefour opened an outlet along Uhuru Highway Nairobi where the now fallen Nakumatt Mega branch used to be located. The growing retailer also announced plans to expand to Mombasa. Naivas, a local retailer, opened up outlets at Mountain View Mall and the Waterfront mall along Mombasa Road among others. Quickmart opened several outlets including Nanyuki Branch in Nanyuki Mall, along Tom Mboya Street in the CBD (Central Business District) and in Kilimani among others. These entries and expansion ensured prime retail spaces left vacant by their counterparts were taken up hence cushioning the performance of the retail sector.
Some international retailers also took the opportunity to enter the Kenyan market. Such international retailers include Turkish home furnish retailer Istikbal, Spanish fashion retailer Tendam Group, Massmart Holdings which is a subsidiary of South African Game stores and Hong Kong fashion chain Giordano just to name a few.
E-commerce and online shopping has also become a popular trend in the country. According to the Economic Survey 2020 done by the Kenya National Bureau of Statistics (KNBS), online shopping is on the rise and is being embraced as it registered an 8.6% growth in internet subscription rates. The increasing popularity of mobile wallets has also made online shopping more convenient.
The retail sector recorded a 34,000 square feet increase in mall space in 2020 following the completion of Golden Life Mall in Nakuru. It is evident that the formal retail sector is growing despite certain individual entities facing financial difficulty and even closure. The growth of the retail sector can be attributed to the following factors.
Positive demographics. According to the World Bank, Kenya’s urban population continues to increase at an annual rate of 4% against the global average of 1.9% hence increasing the need for formal retail space.
Changing Consumer Tastes & Preferences. The Kenyan middle-class social entity has been growing in recent years. An increase in disposable income coupled up with the fact that Kenyan shoppers are now more aware of global retail trends increases the demand for the local shopping experience when acquiring goods and services.
Continued investment in infrastructure in the country has also improved accessibility of various areas and encouraged growth in mall space.
Low penetration of formal retail in Kenya has contributed to the growth of the retail sector in Kenya. The penetration of formal retail in Kenya is 30% while that of South Africa stands at 60%. This shows that there is still room for growth in the Kenyan retail space.
The fact that Kenya was recognized as a regional hub has also facilitated growth in the retail space. This has led to more international organizations and retailers coming into the country.
As much as the Kenyan retail space is soaring, it has been dealt some major blows in recent times, the sector is strongly getting back its footing and thriving while at it as seen above. There seems to be room for growth and more opportunities in the sector as seen with the entry of new and major players into the retail space. In the words of Heraclitus, the only constant is change. And as seen above the retail sector in Kenya is ever-changing.
Content writer at Cue Africa. Email: email@example.com LinkedIn: Selina Liyengwa.