Trend setters: Changes in consumer culture herald opportunities for local and international fashion retailers

The vast consumer market in Nigeria is attracting a growing number of Western fashion and clothing retailers, despite significant challenges in finding suitable mall rental space or standalone properties. While its large population of over 168m – expected to grow to as much as 433m by 2050 according to UN estimates – has a low average disposable income per capita, these aggregate figures obscure substantial pockets of affluent consumers that have traditionally shopped abroad for their fashion and clothing. As a growing number of foreign clothing retailers enter the market, homegrown brands are also raising their visibility and expanding their domestic and international reach.

BIG SPENDERS: Although around 60% of Nigeria’s population survives on less than $2 a day, urban centres like Lagos, Port Harcourt (in Rivers State) and Abuja boast a higher consumption profile as markets with shoppers earning $10,000, according to CSL Stockbrokers. Modern retailers are only beginning to tap this pent-up demand, with just two malls over 20,000 sq metres in Lagos compared to 74 in Johannesburg.

An April 2013 report by Russian investment bank Renaissance Capital on Nigerian state-level developments found that the highest spending on clothes and footwear was in Kano State, accounting for 10% of national spending on these items, followed by Lagos and Rivers states. While some of this demand stems from smuggling to neighbouring countries, due to Kano’s traditional role as a regional trade hub, the report highlights the attraction of the country’s major urban centres. Nigerians are also comparatively likely to finance such consumption on credit: for instance, the 2012 Financial Access Survey conducted by the non-governmental organisation EFInA found that approximately 2.3m people had taken out a loan over the past year to fund purchases of food and clothing.

PENT-UP DEMAND: More affluent Nigerians have long travelled overseas to shop, with the US and UK leading the market for fashion and clothing sales to Nigerians, although Dubai and East Asian cities such as Bangkok and Hong Kong are also drawing a growing crowd. According to VisitBritain, the UK’s tourism agency, Nigerians were the second-highest per capita spenders in 2012 with an average of £432 per tourist, trailing the average of £442 spent by Gulf tourists but ahead of China’s £405 a head. The biggest-ticket item sold is clothing, according to the agency, reflecting significant Nigerian demand that has gone unmet at home. Meanwhile the rapid growth in online sales, driven by turnover in clothing from high-selling brands like Zara and Ralph Lauren, is also indicative of the potential market size for physical retailers. Indeed, successive National Bureau of Statistics household surveys have revealed higher average spending on housing and consumer goods compared to other economies with similar per capita income levels. Contributing to the country’s appeal for prospective fashion retailers, Nigeria was one of 10 African countries that accounted for 81% of the continent’s aggregate private consumption in 2011, according to management consultancy McKinsey.

FRAGMENTED & INFORMAL: In Nigeria’s mostly informal retail market, where modern trade accounts for a tiny proportion of sales, according to the National Bureau of Statistics, the apparel market remains highly fragmented. According to McKinsey, the leading six clothing retailers commanded a combined market share of less than 2% in 2012, compared to 4% in Egypt and 47% in South Africa. However, this has not translated directly into market access for Western retailers: beyond structural challenges such as availability of retail space and the high cost of doing business, retailers have also had to face stark policy reversals over the years. When the federal government imposed a total ban on imported textiles in 2003 to protect the domestic textiles industry, retailers reported a significant growth in the smuggling of foreign-produced apparel, and a rise in market share for Asian producers. However, local producers remained constrained by inadequate power supply and the varying quality of output. Since the ban on imported textiles was lifted in 2010, the frequency of international store openings across all segments, from fashion to hypermarkets, has grown considerably, according to McKinsey, by some 36% a year.

POPULAR BRANDS: Nigeria has attracted keen attention from Western retailers since 2005, when Shoprite opened its first store in The Palms Mall in Lagos. Standalone brand shops like Nike, Levi’s, Mango and Swatch, as well as clothing retailers like South Africa’s Mr Price and Australia’s Woolworths, have since opened stores in The Palms and Ikeja City, the two Lagos malls backed by private equity firm Actis. Local franchisees like Smart Mark, which holds licences to distribute Nike, Levi’s, Converse, Benetton and Swatch, have expanded rapidly beyond these facilities to open shops in key locations like the Lagos and Abuja airports and other malls, such as Silverbird Galleria. By 2013 Smart Mark boasted 30 outlets in Nigeria and Ghana, all brands combined.

AT THE MALL: The rush of new brands has accelerated palpably since 2012. From March 2012 onwards Mr Price, the South African mass-market clothing retailer present in six other African markets, opened two shops in Ikeja City Mall and Surulere Shopping Complex, while Woolworths, in a joint venture with the Nigerian conglomerate Chellarams, reopened stores at The Palms and Ikeja City, having closed down its Nigerian operations in 2005. The landscape of retailers present at malls is changing to include a wider range of retailers focused on specific target groups.

“In the years ahead we will see an evolution of Nigeria’s nascent formal retail centres. The shopping malls will evolve from an eclectic assortment of retailers to a selection of retailers more targeted to a specific income or market segment,” Ngozi Oluwatoyin Edozien, Actis Capital’s West Africa CEO, told OBG. British shirt-maker Hawes & Curtis established its first shop in Lagos in partnership with its Nigerian franchisee Sleeves Limited, while American jeans maker Wrangler opened its first shop at The Palms in 2012. That same year, a number of South African fashion retailers such as Foschini Group and PEP opened two standalone stores each.

UPPER SEGMENTS: Middle-income clothing retailer Mango opened a store in Abuja’s Silverbird Galleria (adding to two more Mangos at Lagos’s two larger malls), while Swedish retailer H&M is planning to start its Nigerian operations in late 2013. Luxury fashion retailers have also flocked to Nigeria’s commercial capital, for instance Hugo Boss opened its maiden shop in The Palms in February 2013. Although the majority of foreign brands have opened shops in major malls, others, including Italian men’s luxury fashion-house Ermenegildo Zegna, opted for standalone shops in premium locations on Victoria Island. Zegna claims seven years of preparation were involved in launching its first flagship store in sub-Saharan Africa in April 2013, where polo shirts retail for around N80,000 ($500) apiece and suits for N320,000-450,000 ($2000-2800), roughly a 10% mark-up on prices at its London stores. Indeed, the firm’s CEO Gildo Zegna told the Financial Times in May 2013 that African shoppers spent 50 times more at its shops than other customers, with demand growing in the high double digits in 2012. Testing the waters in Nigeria, the brand expects to expand further on the continent, with stores planned in Angola and Mozambique in 2014, and in Cape Town in 2015.

LOCAL BRANDS: Recent years have also seen the emergence of Nigerian-owned shops selling local fashion brands alongside imported couture, catering to the market’s growing purchasing power. Small, homegrown retailers such as Leila Fowler and Temple Muse were established in 2008, selling designer brands like Givenchy and Emilio Pucci alongside Nigerian brands. Given the findings of the 2012 McKinsey report, “The rise of the African consumer”, that only 11% of respondents in Nigeria considered international brands more fashionable than local ones – similar to the 12% who thought likewise in South Africa – there is significant scope for domestic fashion brands. Two Nigerian designers in particular, Lanre DaSilva Ajayi’s LDA brand and Folake Coker’s Tiffany Amber label, have captured international attention, and were selected to participate in the UN’s “Fashion for Development” project to support African luxury fashion designers in 2012. Both brands are also carried in upscale fashion shops in Europe. Smaller local brands like Taé have meanwhile focused on expanding locally. Two major fashion events have emerged locally to showcase local talent. Nigeria Fashion Week and Lagos Fashion Week, have attracted major European buyers, such as the UK’s Selfridges and German online retailer MyTheresa.com.

A growing array of shops in Nigeria’s major cities is catering to an expanding pool of more affluent consumers, from an emerging middle class to an elite that traditionally shopped abroad. Major Western brands are scrutinising opportunities in Nigeria as a pilot case for regional expansion, despite significant challenges ranging from the availability of suitable real estate to bureaucratic bottlenecks. The growth of modern retail, and higher-end apparel sales in particular, offers opportunities for local talent to leverage this expanding demand. This growing market will have spin-off effects for Nigeria’s sizeable, yet largely informal, creative economy.