Recently the South African retailer Woolworths pulled the plug on its Nigerian business, citing high rents and duties as well as the difficulties of marketing to consumers in Africa’s most populous country.
Although the Cape Town-based firm focused on the costs of doing business in Africa’s biggest oil producer, analysts said the more basic issue was marketing to wealthy Nigerians who are mobile and brand conscious – and Woolworths is not a big brand.
Those who can afford its clothes, which are similar in style to Britain’s Marks & Spencer, tend to fly to London and bring items back in suitcases, or, if they really want to cut a dash, will splash out on traditional tailor-made clothes or an expensive fashion label.
“They are not viable. A lot of people are coming in: Burberry, Tommy Hilfiger. These are up- or mid-market brands that Nigerians know,” said Bismarck Rewane, head of Lagos-based consultancy Financial Derivatives.
“Nigerians don’t know Woolworths. Insofar as they’ve heard the name, Nigerians associate it with the downmarket British retailer that went bust.”
Woolworths opened its first store in Nigeria in late 2011, tracking other South African retailers such as Shoprite into the nation of 160 million, and grew to three outlets selling clothes and general merchandise.
In its announcement, it said the investment was “deemed no longer viable” after several attempts to improve the performance of its stores.
It added that it remained committed to the rest of its business in Africa, where it runs 59 stores in nearly a dozen countries.
“The Nigerian business was unable to sustain a compelling product and value proposition which represents the brand well, and meets the needs of the Nigerian customer,” the company said.
Although the likes of discount grocer Shoprite have done well in Nigeria, Woolworths’ problems underline the difficulty of doing business in countries with poor infrastructure, little-understood consumer profiles and fluid duty regimes.
“The reality is Africa is a very, very tough place to do business,” said Nic Norman-Smith, chief investment officer at Lentus Asset Management in Johannesburg.
“It’s not as if you can arrive, set up shop and and start printing money, especially in retail, where sites and supply chain are so important.”
Shares of Woolworths ended flat at 74.04 rand.