Foreign retail chains exit amidst Covid-19: What is the future?

If you are regular shopper or love window shopping, you must have noticed that most of Pep Store items are selling at discounted prices.

Despite being one of the leading clothing discount retailers in Africa, Pep is clearing its stock ahead of its planned exit in December this year.

Unless it gets a new buyer to take over the retail stores it owns in the country, Pep will be closing all its shops in Uganda comprising 13 retail stores and one distribution centre by close of the year, rendering more than 85 jobless.

Reason behind the pending exit from the Ugandan market for a retailer known for offering pretty much affordable prices for brand new items for mainly children is due to untenable business environment, exacerbated by the Coronavirus pandemic and its containment measures.

According to PEP Group of Companies country general manager, Mr Liaan Max Scholtes, adverse market conditions in the retail industry have resulted in severe pressure on the Pep Africa business, necessitating consolidation of the business over recent years.

For Uganda specifically, its performance has been impacted by macroeconomic factors including, “a very competitive retail environment, exacerbated by the Covid-19 pandemic,” Scholtes says.

PEP Uganda started operations in 2016 and it served as a strategic platform to enter the East African market with plans to expand and scale operations. These plans have since proved impossible, taking the current and future operating environment into consideration.

Pep, a multinational retail company based in Cape Town, South Africa, is one of the several retail stores in addition to retail chains from the region (mainly Kenya) throwing in the towel just four years into their operations.

Exit door
Metro Cash and Carry (U) Limited and Quick Save Stores operations didn’t last long enough despite being some of the local market pioneers in retail chain business.

They were closed in 2007. Before we all knew it, Nakumatt Supermarket from Kenya closed business in Uganda in 2017, allegedly due to unprecedented debts owed to suppliers and landlords.

Since 2017, Shoprite Naalya branch that was housed at Metroplex Mall has been closed. According to Kampala Capital City Authority (KCCA) inspection team, the supermarket was closed due to standard related issues.

Before that there was Uchumi which closed shop in 2015 after failing to become economically viable in Uganda.

Tuskys, another Kenyan based chain of retail supermarkets, in 2010, found its way into the Ugandan market after buying out two supermarkets Half Price and Good Price. Currently, it is tussling it out with the competition.

Locally owned retail chain store Star supermarket which has since collapsed allegedly due to financial problems coupled with increased competition and a high cost of doing business in the country, is a good example of the terrain under which the locally owned retail businesses have to negotiate to stay afloat.
In the region and elsewhere on the continent, there are some major shake ups. In April, Shoprite closed one of its four stores in Kenya, citing a few months of “trading in a difficult economic climate”, after the store was opened last September.

Shoprite, owner of supermarket chain Checkers, has been reviewing its long-term options in Africa as currency devaluations, supply issues and low consumer spending in Angola, Nigeria and Zambia have reduced earnings.

Covid-19 effects
Walking through the various retail chains, shopping malls and arcades in Kampala is quite revealing. Despite easing the lockdown containment measures by the government, businesses are yet boom — pick up.

A quick observation reveals that most of the shop attendants are either busy scrolling through their smartphones or checking out what is going on the different social media platforms as some simply watch a movie from the nearest television screen as they wait on customers.

At Oasis Mall, Woolworths, the Australian chain of supermarkets and grocery stores owned by Woolworths Group, is clearing stocks ahead of fresh supplies. After three months of non-operations, thanks to the Covid-19 crisis and its resultant containment measures, business is not the same as it were prior to the pandemic.

Foreign owned businesses such as Woolworths are offering massive discounts on different items (ranging from 30 to 50 per cent). This is so far the only way to attract sales that have stalled even as lockdown measures continue being eased.

The World Health Organisation declared Covid-19 a global pandemic on March 11, 2020.
The pandemic has impacted on the global economy, including Sub-Saharan Africa where Uganda belongs. The United Nations Economic Commission for Africa report shows that African businesses are being severely impacted by the Covid-19 crisis.

It indicates that four out of five business in Africa are significantly affected by the current Covid-19 crisis, rating the effect as highly severe or severe.

Results from a business climate survey conducted by the Economic Policy Research Centre (EPRC) on how the Covid-19 pandemic impacted Ugandan businesses reveals low resilience among firms in sectors such as retail chain outlets.

Upon registering its first case, the government came up with a number of containment measures to curb the spread of the virus in the country, such as the closure of schools, restrictions on internal and international travel, wearing of protective gear, use of hand sanitiser and lockdown.

Due to border closures, the economy suffered from supply chain disruptions and the closure of schools impacted on the retail chain businesses.

The EPRC survey noted that Covid-19 pandemic and subsequent lockdown has reduced business activity by more than 50 percentage points. In some cases, business activity has fallen below 100 due to the risk presented by Covid-19.

Future of retail outlets
In an interview, Ms Santa Anzo, the chief fashion designer and managing director of Arapapa Fashion House, says for retail chains dealing in clothing and fashion, there is need for creating linkages between the industry (textile and fashion) and value addition (manufacturing industry).

Once these two subsectors sectors are interlinked and seamlessly feed into each other, Ms Anzo believes: “It will be the answer to the challenges resulting into the closure of clothing retail chains in the country.”

With fashion sector globally worth $3 trillion, Ms Anzo believes local industry players should tap into that resource. But first, “We must reorganise our house — ensure the textile industry is up and running in a manner that it can harness the abundant local talent in the industry through value addition.”

The other option is to innovate. Trying out online exploration as opposed to physical outlets.

Although people are not used to, it is an area she says is worth venturing into. This is doable especially for retail chains involved in merchandise with a long shelf life.

Analysts speak out
Senior research fellow with EPRC, Mr Corti Paul Lakuma, says Covid-19 has exacerbated already existing challenges such as low demand, taxation, unfair competition from informal firms, and competition from counterfeit and substandard goods that some retail chain outlets have been struggling with.

This can be arrested by stopping counterfeit goods from the market, taxing all firms equally and invigorating demand for durable goods.

According to Mr Africa Kiiza, a trade and investment analyst, “Government should step up on regulation of pseudo Foreign Direct Investments (FDI) like Pep, which traded in products that can be manufactured and supplied by local traders.

PEP has been trading in imported products which have increased on the financial hemorrhage and Uganda’s trade deficit.”

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