6th Lagos Economic Summit – EHINGBETI 2012 From BRICS to BRINCS: Lagos holds the key Presentation...

6th Lagos Economic Summit – EHINGBETI 2012From BRICS to BRINCS: Lagos holds the key

Presentation by Anton Wagenaar

Organised Retail

• What is organised retail– The founder of Wal-Mart, Sam Walton said it best,– “The secret of successful retailing is to give your customers what they want. And

really, if you think about it from the point of view of the customer, you want everything: a wide assortment of good quality merchandise; the lowest possible prices; guaranteed satisfaction with what you buy; friendly, knowledgeable service; convenient hours; free parking; a pleasant shopping experience.”

• The USA is the best example for organised retail– U.S. Commerce department reports total retail sales in 2011 were $4,7 trillion, which

represents an 8% increase over 2010 total retail sales. This includes companies that are solely retail and companies with significant retail operations (motor industry “Ford”, telecoms “Verizon Wireless”, etc.)

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Organised Retail

Organised retail* , % of total, latest available

United States

Brazil

Russia

China

India

Sources: ICRIER; McKinsey

100

chain stores

*Supermarkets and

0 20 40 60 80

Economist report (14 April 2011): “Send for the Supermarketers”

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A.T. Kearney Global Retail Development Index (G.R.D.I.)ranks the top 30 emerging countries for retail development.2011 Ranking:

1.Brazil– A GDP growth of close to 5 percent is expected through 2013, and preparations

for the 2016 Olympic Games and 2014 FIFA World Cup are expected to generate more than $50 billion in new investment.

– Brazil, with a population of 193.3 million, is now the world's eighth-largest economy, and the government is bolstering long-term GDP growth by increasing infrastructure investments.

– Shopping malls, which account for one-fifth of retail sales, have exploded, with 16 openings in 2010, 25 in 2011 and 30 planned for 2012

– Formal retail amounts to approximately $230 billion

Organised Retail industry in BRICS

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4.India– Organized retail accounts for 7 percent of India's roughly $435 billion retail

market and is expected to reach 20 percent by 2020. Big-box retail, in the form of hypermarkets, has gained prominence—a refocus from the burgeoning supermarkets and small formats of several years ago.

– The Economic Times reports that the year 2011 saw the addition of over 1,5 million square meters of organised retail space across the country.

– India has the highest number of retail outlets in the world at over 13 million retail outlets, and the average size of one store is 50-100 square feet.


Total number of retail outlets in select countries (in ‘000)Country 2002 2003 2004 2005 2006 2007

India 11,689 12,049 12,408 12,770 13,122 13,448China 5,463 5,208 4,854 4,635 4,503 4,496Brazil 976 1,006 1,071 1,122 1,157 1,188Russia 437 447 456 466 475 480 USA 923 923 934 945 946 946UK 314 312 308 302 298 295France 416 411 409 407 406 206Germany 288 286 284 283 281 281Source: Euromonitor


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6.China– China's retail market size is $2.1 trillion, or roughly 50 percent of the U.S. retail

market, and retail growth remains strong at 15 percent between 2009 and 2010.– Retail industry consolidation continues, with the market share of the top 20

retailers increasing from 8.4 percent to 8.9 percent from 2009 to 2010.– Formal retail amounts to approximately $420 billion

14.Russia– McKinsey and company reports the Russian economy recovered from the

downturn, with the retail market returning to pre-crisis levels and expected to grow at a CAGR of 10 percent over the next five years. Food retail is at pre-crisis levels, while non-food retail is expected to grow faster.

– Russia is hampered by its relative political instability and a drop in newly created retail sales area. Still, the fact that Russia (population 141.9 million) is expected to become Europe's largest consumer market with rising disposable incomes and an expanding middle class makes it a priority for many retailers seeking long-term options.



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26.South Africa– At the end of 2009, South Africa had about seventy major shopping malls in all

major urban and tourist centres. Most were to be found in Johannesburg, 23 of them. Some of the biggest shopping malls are also in Johannesburg, like Eastgate and the newly enlarged Cresta.

– Another mega shopping mall is the Gateway in Umhlanga, just outside Durban, which offers 150,000 square metres of shopping.

– Cape Town's Victoria and Alfred Waterfront shopping mall has over 400 stores to cater for all shopping needs, budgets and tastes. Other exclusive centres are Johannesburg's Sandton City, Nelson Mandela Square and Hyde Park.


¤Nigeria– Wholesale and Retail Trade is 16% of GDP of which 95% according to the Oxford

Business Group is informal– Nigeria’s total GDP (2010) was $193 billion with formal retail amounting to

approximately $1,5 billion.


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Any large scale mall development needs reputable anchor tenants to drive traffic in these malls: Cinemas / Clothing / Food retailer / Media store

1.A Food retailer is a critical aspect in the development of large malls– Food retailer makes a cash flow investment of $8 to $10m;– Further investment in terms of a 10 year lease agreement guaranteed of $12m;– Retail property developer needs this food retailer’s lease agreement to secure

finance over the rest of his mall (banks require lease agreement from an reputable food retailer).

2.The mall developments able to give local Nigerian retailers an opportunity to develop their own businesses as well.3.Certainty of tax / duty payments for the Federal/ State Governments;4.Regulatory compliance

– Easier for regulators to liaise with organised retail;– Regulators use organised retail as a benchmark to analyse the rest of the market;

5.Employment capacity– Anchor tenant (200 to 230 direct and indirect employees);– Mall project (overall between 500 to 1,000 employees);– Employee training and development;– Retail is globally one of the largest employers (50% of all Australians employed or

previously employed in retail; it is in India second after agriculture in size of the number of employees);

Benefits of organised retail / anchor tenant

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6. Economies of scale can lower prices for consumers– Additional investment in supply chain to maintain competitive edge;– Added cold chain facilities for perishables.

7. Shoprite was able to convince South African/ Zambian manufacturers to enter Nigeria: Tiger Brands, Zambeef, National Brands, Clover, Rainbow Chickens, Pep stores, Spec savers, etc.

8. Farmers / S.M.E. see the benefits to supply a large retailer– Certainty of market and able to negotiate pricing directly with the retailer;– Large retailers have distribution centres to distribute products;– Promotional opportunities for farmers and local suppliers to reach a large number

of customers in a short time;– Shoprite has 250 local Nigerian suppliers and farmers and therefore only import

24% of what it sells.• Manufacturers able to work with organised retail to analyse the performance

of their range of products or their promotional activity• It adds to the quality of life for the general public

– Clean and relaxing atmosphere;– Uplifts the community around the Mall;

• Strong retailing sector promotes tourism– Malls have cinemas, coffee shops, kids activities, etc.– Malls in Asia have waterparks, roller coasters, etc.

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Benefits of organised retail / anchor tenant

Mall development analysis

1. Mall development takes 2 years to construct and between 1 to 3 years prior to this to conceptualise and plan;

2. Road infrastructure is a critical aspect– Easy access for customers and service/ delivery vehicles;

3. Parking must be at least 3 or 4 parking bays per 100m2 of lettable area;4. Close to residential areas;5. Mall developments cost is between $70m to $120m;6. Cost of land cannot exceed 10% of the developmental and construction

cost; and7. Private equity investors trying to find other means to unlock the value of the

land to make it equitable for the land owner to reduce his share of equity at the start of the project.

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Challenges to invest in RetailProperty Developments

1. Securing land for property developers– Land difficult to open up– Time consuming

2. Finance charges high– Naira interest rates extremely high (24%)– Dollar finance also expensive

3. Construction cost high (double South Africa according to Actis)4. Getting Federal and State Government to support these investments

– B.O.I. partnership to support SME’s– F.G. to see value of retail investments to enhance the overall supply chain

5. Road networks to support retail infrastructure6. Manufacturers to assist in analysing the value chain especially for far

outlying stores (Enugu)

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Conclusion

1. We believe formalized retail is an integral part of the complete value chain of any country– We do not believe agriculture and manufacturing alone can develop Nigeria.

Formalised retail is also needed to complete the entire value chain in the country.

2. The investment in each Mall / Store is significant which shows our long term commitment to invest in Nigeria. We already have 3 stores in Lagos alone;

3. Formalized retail uplifts various industries and farmers;4. It is one of the largest employers in the world;5. We are more than willing to work with the Federal and State Governments

to be part of the process to develop Nigeria in becoming the 20th largest economy by 2020.

Thank you

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6th Lagos Economic Summit – EHINGBETI 2012 From BRICS to BRINCS: Lagos holds the key Presentation...

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