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As mall culture struggles to take root, local kiosks offer economic hope

BUSINESS
By Frankline Sunday | September 12th 2016
By Frankline Sunday | September 12th 2016
BUSINESS
Jibran Mzenge displays brocolli at his stall at Marikiti Market in Mombasa. 11 November 2015. Photo Mwangi Muraguri/Standard PHOTO: COURTESY

Last week, yet another study on Africa’s commercial retail space revealed that Kenya is developing the largest number of malls in Eastern Africa.

Developers are planning to build 19 new malls, adding to the 53 malls already in existence, and bringing the total number of shopping malls in the country to 72.

While some business leaders and investors point to the mushrooming of the expansive, glittering malls as a sign of development and economic well-being, the reality is perhaps less alluring.

Critics have said the growth of Kenya’s formal retail space is unsustainable and built on shaky economic projections that make it expensive for both consumers and traders, and could choke economic growth.

The investment and development of new malls across the country has been attributed to rising income levels and a thriving middle class.

Early this year, the Oxford Business Group said Kenya’s retail sector has a bright outlook, almost tripling modern retail space in 2015 on account of demand from consumer spending “that has risen by more than 65 per cent in recent years”.

Income patterns

However, a closer look at income distribution patterns across the country indicates that the dozens of malls in the country are competing for a fraction of middle and high-income earners.

Data from the Kenya National Bureau of Statistics (KNBS) indicates that the share of middle to high-income earners is lower than usually hyped.

Out of 2.3 million people working in the country’s formal sector, only 22 per cent earn more than Sh50,000 per month – and less than 3 per cent earn more than Sh100,000.

This means that the retailers setting up shop in the new malls across the country are targeting the same clientele, a situation that is raising concern among them.

“A large number of the malls opening around have the upper levels largely empty because the retail traffic is little, so the concentration of retailers is on the ground floor, which is prime,” said Wambui Mbarire, the CEO of the Retail Trade Association of Kenya.

Developers hard-pressed to repay the huge capital spent putting up the structures are thus inclined to levy high rents on the few tenants, who roll the costs over to consumers, making goods and services in malls more expensive than at other retail centres.

The high rents have lead to depressed occupancy as witnessed in outlets like Embakasi’s Taj Mall, Thika Road’s Juja City and Spur Mall, as well as Kenyatta University’s Uni City Mall.

In some malls, consumer dissatisfaction with high prices has forced retailers to relocate to other outlets, with Kisumu’s new malls particularly witnessing this shift, as foot traffic reduces.

A look at consumer trends in other countries indicates that the new malls will remain largely unoccupied for as long as income and spending levels among Kenyan consumers remain constant.

The United States, which has to a large extent influenced the local obsession with the mall culture, is undergoing a ‘dead mall syndrome’, as department stores and malls increasingly board up.

Top retailer Seers is reported to have closed down about 300 stores in the US since 2010, with other major department stores like JC Penney and Macy’s also making significant closures.

The Business Insider reports that between one-third and one-half of the overall retail square footage in America will be wiped out within the next five to 10 years, following a shift to e-Commerce that leads to fewer mall visits. That means massive losses as structures are abandoned, torn down or re-purposed.

Moving to counties

In April, Britam asset managers cautioned that the mall space in Nairobi is in oversupply, and no additional space is required in the city after the establishment of the Two Rivers Mall.

Mall developers are now increasingly moving to the counties, where lower land prices and capital-hungry county governments present welcome opportunities.

Regions like Kisumu, Naivasha, Nakuru, Meru, Nanyuki and Mombasa have topped the list of locations where opportunities exists for the development of urban shopping spaces.

However, this formalisation of retail spaces in peri-urban and rural centres has been said to be undermining local market systems, posing a threat to the socio-economic wellbeing of the community.

A US study indicated that every $100 (Sh10,000) spent at a local store generates 60 per cent more local economic activity than the same $100 spent at a chain store.

Local markets have been found to have a stimulating effect on local communities as their low barriers to entry provide opportunities for many to start and run their own businesses.

In addition, many retailers in local markets are family businesses and employ extended family members, providing intra-generational economic advancement.

Markets further increase the resilience of towns and add as much as 25 per cent of foot traffic to towns.

African cities like Dakar and Marrakesh have been praised for cleverly tapping into their sprawling towns to provide a new revenue streams.

In Kenya, however, the competition to attract foreign direct investment into the underdeveloped landscapes of the counties has seen many county administrations neglect their markets.

Yet, the current pace of Kenya’s economic growth is not adequate to lift more people into the middle to high-income brackets and create new consumers as fast as the pace of construction of malls.

At the same time, 75 per cent of the country still relies on informal trade markets and kiosks, which have been proven to contribute more to overall economic well being.

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