Malls go bust on fairy tale of growing middle class

PHOTO:COURTESY

A few weeks ago, tenants at the Point Mall in Buru Buru, Nairobi resolved to close their businesses. They decried the unusually high rents for a development that attracted few customers.

“We have no problem with paying, but in the short-run they should bring down the rent to attract tenants and make the mall active,” said Florence Murai, one of the tenants.

Another tenant described the facility as a ghost mall, noting that more than half of it was unoccupied. Yet they were promised a busy shopping mall, teeming with some of the biggest brands when they first came shopping for space.

The day before they defiantly closed their shops,  Florence says she never saw  a single customer. And this has become the norm rather than the exception, not just at The Point Mall, but in most shopping malls. Along Mombasa Road, about six floors of the newly built NextGen Mall are virtually vacant. In a city where parking space is priceless, acres and acres of the mall’s underground parking lot are being doled out to any motorist who disguises as a shopper. The owners have resorted to desperate strategies to attract customers.

“The owners decided to make it free because customers found it very expensive. People were being charged as high as Sh400. So customers refused to come forcing the owners to make it free until the time when customer numbers would go up,” said a security guard at the mall whose anchor tenant is Nakumatt Supermarkets.

But even as shopping malls in Nairobi struggle to lure customers, new malls are being erected. At the beginning of this year, Garden City lost the bragging rights as the country’s biggest shopping mall after the opening of the Sh16 billion Two Rivers Mall, stretching Nairobi’s area under shopping malls to 470,000 square metres.

Today, of the ten biggest malls in sub-Saharan Africa, three are in Nairobi. Two Rivers Mall, Garden City Mall and The Hub are ranked second, third and fourth largest malls respectively behind South Africa’s Mall of Africa which is the largest mall in Africa with 131,000 square feet.

“Outside of South Africa, the Kenyan capital Nairobi has the greatest volume of modern retail floor space in Sub-Saharan Africa, and it continues to be a development hotspot,” according to the 2017 Africa Report by property consultancy Knight Frank.

Dr Scholastica Odhiambo, an economics lecturer at Maseno University, thinks that the shopping mall craze is a “ticking bomb.” Just as in the real estate sector, return on investments is coming slow, says Odhiambo.

However, they have tried to come around this slow returns by charging prohibitively high rents. This has had unintended effect of scaring away tenants. Those who have chosen to take up these expensive spaces have been forced to charge high prices for their products to cover for the high fixed costs including rent, electricity, water and other bills.

Nonetheless, Knight Frank in the report, extolled the manner in which “the retail property sector has been a major focus for development activity within Africa over the last decade, causing the shopping mall concept to take root in increasingly wide range of major African cities.”

This growth, added Knight Frank, has been driven by among other factors, the explosion of the continent’s “consumer markets.” Africa in general, and Nairobi city in particular, have a burgeoning middle class that was ripe for exploitation by investors from all over the world.

The British magazine, The Economist, in a special report titled “Business in Africa,” declared: “This is the Africa of business magazines and bank ads: a continent that is rising at a prodigious pace and creating profitable new markets for multinational firms.” The magazine noted that there were 1.2 billion opportunities in Africa.

Nairobi, specifically, was described as “a city of malls and highways” by the magazine. And Garden City, which had just been opened, was celebrated as “the latest temple to consumerism.” Today, Garden City is easily another ghost mall with an embarrassing sight of empty floors and deserted parking lots.

Most of these shopping malls that have sporadically mushroomed in major towns and cities, spurred on by the narrative of ‘expanding middle class,’ have started feeling the heat as this bourgeoisie façade begins to unravel.

Koome Gikunda, a director of Actis, the private-equity firm that built Garden City, shared with the Economist of a unique way they determined that their catchment area was populated with “a middle class affluent enough to shop at the mall.” “We hired a firm who flew over the area in a plane and literally counted TV satellite dishes,” he explained.

Unfortunately, the middle class that is ready to splurge cash on luxurious products being sold in most of these malls is too minuscule. One of the reports that has been relied upon in this middle class discourse is one by the African Development Bank (AfDB) which included in its definition of this socio-economic class the “floating middle class”— those who are not poor but for whom a slight disturbance can plunge them back into the abyss of poverty.

Kenya’s floating middle class, noted AfDB, is at 44.9 per cent, and without them, the country’s middle class would be at a low 16.8 per cent.

Also included in the middle class that is touted to drive the expansion of shopping malls is this floating middle class. Dr Odhiambo said the growth of malls is being driven by a new breed of “trendy population with a knack for European tastes and preferences.” 

WINDOW-SHOPPING

Some these people are not necessarily buying these products but admiring them. “Some of the middle income people will just come to see, not even to purchase unless they are getting into the supermarket,” says Odhiambo.

Anzetse Were, a development economist, says it is the same thing happening at most of the malls along Thika Superhighway which appear to enjoy high foot traffic. Most of the shoppers, she says, are just students who are window-shopping.

Those who can afford to shop in these malls have other priorities, according to Anzetse. She explains that for the real middle income persons, their disposable income—or income remaining after deduction of taxes and other mandatory charges— is neither being spent nor saved; it is used to ensure that their old and infirm mothers in the rural home are well taken care of or pay school fees for their younger siblings. It is not being spent on a Sh15,000 Gucci perfume being sold in one of the malls.

“Because we don’t have a social welfare system, a lot of the poorer Kenyans rely on the middle class for survival. So you find that eats into their disposable income,” says Anzetse.

 She says that the middle class people are paying for school fees, upkeep, funerals and all those things which in developed economies would be catered for by the government.

Moreover, the prevalence of the informal sector is also working against the malls in Kenya, says Anzetse. “There is a big informal market in this country that the middle class shop in,” explains Anzetse, giving an example of a popular place along Nairobi’s Ngong Road where most middle class people buy quality furniture. It is the same with other such products as grocery, clothes and other products.

“I don’t see much change even in the services in the mall and what is produced in boutiques,” says Dr Odhiambo.

Knight Frank Kenya Managing Director Ben Woodhams, in a past interview with The Sunday Standard, said that it is not that there are so many shopping malls in Kenya, but the rate at which the malls have sprouted has surged past the rate at which Kenyans are embracing shopping as a lifestyle. It will take some time before Kenyans transition from their idea of buying just what they need from kiosks and mama mboga.

Or perhaps Kenyans will not embrace the so-called formal shopping, just as it has been difficult for them to embrace the formal financial system, modelled around banks. Perhaps, the retail sector needs an M-Pesa revolution as one which swept through the financial sector.

For Julius Kipng’etich, the CEO of Uchumi Supermarkets, the allure of the grandiose shopping malls is not working for them. As a result, Uchumi has set its eyes on convenience stores rather than welding their stores on expensive shopping malls.

Global information and measurement company Nielsen, in its report: How to Navigate the Retail Distribution Labyrinth in Africa, noted that the most common shopping channel in Africa is a simple table top, which it described as “...a stand set up on the side of the road or in a local market to capture passing trade.” It advised retailers moving into Africa, to take this into consideration.

“When they constructed this building, the developers only looked at this side,” said Florence, pointing at Buru Buru Estate, a perceived middle class neighbourhood in Nairobi that most malls target.

“They forgot about the customer behind the mall, those who are used to buying chips at Sh60. They can’t come here and buy chips at Sh100,” said Florence, pointing at an unseen slum behind The Point Mall.

The middle class in Kenya are also looking for a better deal, according to Anzetse. Moreover, these developers can’t procure a simple analytic to make their businesses viable. Both NextGen and Garden City are in the wrong side of the road.