Mall developers desperate to sell space are now targeting small businesses as competition intensifies.
Some developers are even enticing small business with loans to finance uptake of space and even partnerships to set up shop in the facilities.
Uptake of space among corporates has reduced forcing malls to look elsewhere for customers. According to the 2015 market update by Knight Frank, tenancy in malls fell by nearly one half last year confirming fears that supply of formal retail space is higher than demand.
Absorption of formal retail space declined by 45 per cent compared to the first half, largely because major retailers had already secured space in the upcoming developments,” the Knight Frank report read.
With customers hard to come by, malls are now coming up with creative ways to woo them. Some are even doing away with what is known as goodwill, giving cheaper rates and may even be willing to reduce service charge in a bid to get tenants for the empty space.
“We are being lured to take up space and it’s something we can consider if the cost is low enough due to the effect of excess supply,” said entrepreneur Obado Obado, the founder of Café Deli a coffee shop and restaurant chain in Nairobi.
Knight Frank said big retailers are in a wait-and-see mode to assess performance of new premises.
Deacons East Africa Chief Executive Officer, Mr Muchiri Wahome, says they have been getting invitations to view new spaces every other day but added that their selection has to be pegged on their marketing strategy.
“Actually we are spending one day per week here with my executive team visiting two new malls that are in the development mode,” Mr Wahome told Smart Company.
Stratification of mall spaces
He said the influx will lead to a stratification of mall spaces to accommodate SMEs at the lower grade level.
“I think what effectively would happen, like other developed markets, is the stratification of malls into A grade, B grade and C grade malls” he said.
Mr Wahome said the challenge for most mall operators will be in getting an anchor tenant.
Besides Uchumi, which is facing cash flow issues, anchors for big malls will now be the new entrants into the market with Carrefour, and obviously Nakumatt leading the pack and Tuskys as well as Naivas coming close by.
Entry of international brands will be key in securing mid-tier malls with an anchor tenant before they can then let other shops to small retailers.
“You will find the town supermarket beginning to get into the secondary malls which will be B and C malls. If you go up Juja Road I do not expect the big chains will necessarily go into those towns. It gives the opportunity for the smaller supermarkets to grow into the retail space that we have,” Mr Wahome said.
Getting a good rate for the space will be crucial. However analysts say it is important to factor in hidden costs such as the service charge, which have been growing substantially to cover costs of security following spate of terrorism attacks.
“My advice to any other small and medium size business is that if you want to go into these properties, you must try very hard to limit your rental exposure to a maximum of 10 per cent of your revenue. If you go beyond that then your numbers will start giving you a very big challenge,” Mr Wahome said.
Kenyan start-ups such as Cafe Deli and Amaica restaurant have the opportunity to give the new malls an ‘African’ face and get rates that can compete with the international brands that have taken up eateries in the properties.
“Food is an important thing; what is the mall offering? Unfortunately what we are seeing is a cut-and-paste thing so you find KFC and if it is coffee it’s Java. You don’t get restaurants like Kosewes and why aren’t they coming out to offer a difference?” Mr Wahome posed.
He said landlords should be looking out for those operators who have been very successful in holding middle class clout and, therefore, “the opportunities for those who operate food and restaurants from an African, Kenyan perspective professionally”.
Prospective entrepreneurs in real estate are always put off by the impossibly huge capital needed to venture into the industry.
Even buying just land is bound to set you back millions of shillings especially in Nairobi where the prices have gone through the roof. When you add the prohibitive construction costs, you are talking of an industry that’s largely the exclusive domain of the moneyed.
However a new model is set to change this and with less than Sh10 million you can be in real estate business. All you need to do is buy a unit of an apartment and allow the developer to run it commercially.
Kenyans are used to a situation where you buy a unit of an apartment for a home. However, in the new model, you buy it as a form of investment. Anyone who can afford can own a unit — one to three bedroom unit — and surrender it to an operator who will run it for the investors.
Soho furnished apartments are the trailblazers in this novel ground.
As an investor, you earn from your unit when it is rented out. As the developer will be operating under an internationally recognised brand, your investment will have a head-start in the increasingly competitive industry.
“You will be able to obtain your lease and title to the property but you will be tied to an international operator,” said Mr Nathan Luesby, a consultant for the project.
The apartments target non-government organisation, embassy and multinational workers visiting Kenya for short periods of between three and 12 months.
The advantage is that investors are buying into a recognised brand and hence do not have to go through the gruelling process of marketing and position the business in the market.
Mr Luesby estimates that the apartments could deliver returns of up to 14 per cent.
“This is an overlooked niche with a very high demand by clients who do not want long-term rentals or expensive hotels where they are billed per day,” Mr Luesby told Money.
He estimates that the apartments could be able to attract up to 80 per cent occupancy.
The apartments will go for an average of Sh9.5 million for a studio to Sh35 million for a three-bedroom duplex.
Mr Luesby said they are in talks with several international operators to run the investments who might add brand premium once they come on board.
“We are hoping to get a deal in the next four to six weeks, and who knows maybe they will even charge more than our current prices, so it’s better to get one now,” he said.
Real-estate agent Realto Group Ltd managing director Rajbal Sahib said expatriates like serviced and fully furnished apartments to enable them settle in and start working upon arrival.
A busy electronic shop on Kimathi Street, Nairobi, is renowned for selling genuine electronics having been in existence for decades.
Ms Isabella Mwashigadi was convinced by a friend that the shop sells genuine products and was encouraged to buy an external hard disk from the shop. She was slightly shocked by the high price but because it was of good quality, she decided to put in just a little bargain.
“I was told a lower price would only be possible if I waited outside the shop and the gadget would be delivered to me without receipt. I called my friend to seek his advice and he told me to cooperate because that is normal. I found it a bit too risky and left,” Ms Mwashighadi told Money.
Surveys show that many businesses suffer immensely from employee theft. In fact the vice has been cited as one of the main reasons many start-ups fail to make it beyond the second year.
According to the 2012/2013 Economic Survey on the Global Retail Theft Barometer (GRTB), organised retail crime is a major concern with the Sh200 billion retail trade market in Kenya said to be losing an estimated Sh3 billion annually.
The Statistics from GRTB reveal that global shrinkage owing to customer theft, employee theft and general stock losses due to internal system errors in 2011 alone, exceeded $119 billion.
Audit, tax and advisory firm KPMG says the reality of employee fraud in today’s businesses informed its latest product in the market to allow for safe whistleblowing.
The Ethics Hotline Service provides a company with a whistleblower hotline and an online platform where employees can raise the alarm without revealing identity.
KPMG then passes the information to the relevant business channels who can then exercise caution as it investigates potential loss in revenues from employee-related theft.
The vice has grown from small-time theft from shelves of pocket size items into a complicated web of perpetrators who have mastered the art of dodging many established control mechanisms. Now thieves target high-value products such as electronics, furniture, baby food products, cosmetics and general food items.
According to the retail sector’s lobby group, the Retail Trade Association of Kenya (Retrak), theft is a major problem facing retailers and it is at times perceived as a “victimless crime,” thus attracting lenient penalties.
Supermarkets are the worst hit due to what Retrak attributes to their expansive physical distribution in the country.
Retailers are losing not only from the shelves, but also from the back office stock system and the front office, or at the till where employees collude to steal.
A survey released by KPMG puts the country’s false claims prevalence higher than her East African neighbours.
In June 2015, retail chain Tuskys Supermarket suspended 91 employees at its Tom Mboya Street store in Nairobi on suspicion of internal theft.
The employees are accused of working with an external cartel that was allegedly clearing goods from the store and later selling them to retail shops in Nairobi and its environs.
Even CCTV cameras do nothing to address the problem as employees are adept at circumventing technology. Yet the same employees hold the key to rooting out the menace.
KPMG says over 40 per cent of all fraud cases within an organisation are detected with tip-off from employees accounting for nearly half of all information that leads to the discovery of fraud.
The firm’s chief executive Josphat Mwaura said organisations with effective hotlines are more likely to catch fraud by a tip-off because employees have a channel to report misconducts which are inconsistent with their organisations’ values or the laws of the land.
However for employees to help the company in battling theft, there ought to be a proper mechanism that protects them from being victimised. “What really matters is how you let your employees alert you without the fear of victimisation and how you will carry out an independent verification to eliminate any attempts of set-ups and wrong information.” he said.
Experts also advise that businesses address the situation through cultivating a culture that allows employees and other stakeholders to report corruption, misconduct and fraud with their identities kept confidential unless they choose otherwise.
An Ethics Hotline is a simple, yet highly effective management tool designed to enable concerned employees in an organisation to report fraudulent, corrupt and unethical practices.