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Malls outdo each other to attract clients, shoppers

Sunday September 4 2016

The soon-to-be-opened Two Rivers Mall. Experts say Kenya’s mall culture is crossing the demand/supply equilibrium, and could soon suffer “market cannibalisation”. PHOTO | VINCENT ACHUKA

The soon-to-be-opened Two Rivers Mall. Experts say Kenya’s mall culture is crossing the demand/supply equilibrium, and could soon suffer “market cannibalisation”. PHOTO | VINCENT ACHUKA 

By VINCENT [email protected]@ke.nationmedia.com

When you step into the soon-to-be-opened Two Rivers Mall in Ruaka, you will be forgiven for thinking you have left Kenya and entered a first world country. 

And why not? You will be strolling on Sh17 billion worth of real estate, with more than 200 stores to shop from, spread over 700,000 square feet dotted with international brands like Swarovoski, Flormar, Vox, Colosseum Patisserie, Villeroy & Boch and Eugen Klein.

The anchor tenant is Carrefour. And yes, there are plans to install a dolphinarium for visitors to watch dolphins.

But drive just two kilometres away to Ruaka town and you will be confronted with donkeys ferrying water, idle youth chewing miraa and touts competing for passengers to board matatus.

Another three kilometres away on the Northern Bypass, families live in single-room shanties at Marurui slum.

This is the dilemma that developers are facing as the debate shifts to whether Kenya’s middle class has enough numbers, purchasing power and growth to match the speed at which malls are being erected.

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There is a fear that by producing similar products and competing for similar customers, the mall industry could be pushing itself to market cannibalisation.

This is a situation where a new product fails to appeal to a new segment of the market and instead eats into the existing market share of its competitors, resulting in an overall reduction in sales and, eventually, the death of some players.

A similar scenario is playing out in the United States, a country widely referred to as the mother of the mall culture, where a construction boom has made the country over retailed.

This, in addition to the rise of online shopping, has turned what were once shrines of consumerism into ghost buildings with some being turned to medical centres, colleges and churches.

Two Rivers will take over from The Hub in Karen as the biggest mall in East Africa. The Hub has held this position since its opening in February, with 376,000 sq ft. Garden City on Thika Road held this title for eight months, from May last year, with 355,000 sq ft.

Sophisticated design

And come May next year, Waterfront, also in Karen, will add another 420,000 sq ft of shopping space to overtake The Hub as the second largest mall in the region. Just like Two Rivers, it will be sophisticated in design and tenant mix, with a three-acre man-made lake at the centre.

Experts say this will be the trend as Kenya’s mall culture crosses the demand/supply equilibrium, especially in Nairobi, as developers are forced to be creative to attract tenants and shoppers.

“It is no longer an issue of just building a mall hoping to attract clients. It is about placing it in the correct place and having the right tenant mix to attract shoppers,” says Mr James Hoddell, the chief executive of Mentor Management Limited.

He adds: “Many malls which are not designed to meet the needs of ordinary shoppers are placed in areas where many such people live, or in prime areas but with little population density or traffic. This is causing problems, like on Thika Road.”

The 46-km superhighway has six malls: Garden City, TRM, Juja City, Spur Mall, Uni City and Mountain Mall. A seventh mall is under construction at Roasters, just next to Mountain Mall.

But apart from TRM, Garden City and Mountain Mall, the rest are virtually ghost malls with very low occupancy levels.

Uni City, which is owned by Kenyatta University (KU), was completed early last year but is yet to get an anchor tenant. Uchumi Supermarkets, which had expressed interest, pulled out over alleged cash-flow problems.

Naivas has shown commitment but is yet to open shop. Without an anchor tenant, KU will find it difficult to convince other clients, according to Arc Consultants.

“The anchor tenant occupies large retail areas for a small rent but generates the most customer traffic, while preferential tenants — who fall in the second category — represent brand names around which the shopping centre is built,” says the company which offers real estate advisory services.

“The tenant mix is what causes customers to visit the shopping centre. It must fit the targeted income group,” it says.

Kenya is currently leading in sub-Saharan Africa, excluding South Africa, in terms of availability of shopping space. Real estate consultancy firm Knight Frank recently said Nairobi alone has five million sq feet of shopping space.

Competitive edge

This is bigger than any other city excluding Johannesburg and Cape Town, which are both in South Africa, according to the report “Shop Africa 2016”.

The report says another 5.1 million sq ft are in the pipeline, which will firmly secure Nairobi as sub-Saharan Africa’s largest mall development spot.

But is there money still to be made, or is the mall construction boom headed to a glut, like in the office and high-end real estate industry?

It depends on whom you ask. Last year, the Kenya National Bureau of Statistics (KNBS) said the country’s retail sector generated Sh460 billion, a 53 per cent jump from Sh300 billion in 2011.

“The competitive edge of any mall is its ability to provide consumers with a variety that would suit their tastes and appeals. Waterfront’s unique selling point, for instance, will be that it won’t be just a mall but a town centre,” says Ms Laura Mutindi, the project manager.

“A key consideration should be provision of unique selling points when developing a mall so that the need of every shopper is satisfied. There is a need to convert informal retail into formal retail, which will benefit all stakeholders,” says Mr Kevin Kaburu, director of marketing and communications at Centum Group, the developers of Two Rivers.

It would cost a tenant between Sh200-Sh380 per sq ft at Waterfront, which will have 206,000 sq ft of lettable space. Conservatively, this means the mall owners will make about Sh41 million monthly, assuming 100 per cent occupancy. Ms Mutindi says Nakumatt have already confirmed that they will be the anchor tenant, taking up 70,000 sq ft.

But reaching 100 occupancy level is getting increasingly harder as more and more malls join the market.

Shujaa Mall in Kayole is almost 50 per cent empty, two years after it was opened. Britam Asset Managers say it is time developers ventured outside Nairobi.

“After the opening of Two Rivers Mall, no further retail space will be required in Nairobi, as there will be oversupply,” Britam Asset Managers chief executive officer Kenneth Kaniu says.

But Nakumatt, the anchor tenant of most of the big malls (20 in total), disputes this.

“From our market research, we are nowhere near saturation point,” says Mr Thiagarajan Ramamurthy, the regional operations and strategy director.

“Like many other formal retail aspects, malls are segmented and designed to appeal to a specific market. We have many middle-level malls and very few general level and high-end malls.”

He adds: “In Kenya, the formal retail penetration is estimated at about 18 per cent. This means we have a long way to go before we attain an optimum retail penetration of about 40 per cent. It is however fair to say malls are still being patronised by a minority of the segment.”

Key factors for the surge in mall culture are urbanisation, a huge young population and a rapidly increasing middle class. These have led to an improvement in the economy.

Kenya rebased its Gross Domestic Product in 2014 from $44.1 billion to $55.2 billion, crossing the threshold to become a lower middle income economy.

According to KNBS, Kenya’s middle class is anyone spending between Sh23,670 to Sh199,000 a month.

But Mr Hoddell argues that what is considered “middle class” in Kenya does not match the target market of most of the malls.

“This is bound to create problems in the short term but it will sort itself out as the market corrects itself. As competition increases, mall owners will realise that not all Kenyans will walk to a Nike store and buy shoes; and they will be forced to re-adjust their expectations,” he says.

But Mr Jonathan Yach, The Hub’s manager, says: “Retail is about adventure. Ultimately it is those that embrace diversity, encourage community connection and create an environment where people feel at their very best and happiest through everyday moments, that will survive.”

The Hub’s occupancy rate is currently 80 per cent.