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Another South African retailer is exiting the East African market
By our News Team | 2023
Hardware and building supplies chain Builders Warehouse leaves Nairobi less than three years after opening its doors.
In yet another exit from East Africa by a South African-based retailer, Builders Warehouse is in the process of closing its single-store operation in Kenya less than three years after opening.
The store at Waterfront Karen in Nairobi opened its doors for physical and online trading in August 2020 with almost 10 000 square metres of trading and dispatch space, along with a garden centre.
The Builders Warehouse store in Nairobi. Photo credit: Builders Warehouse
This was the retailer’s first venture into East Africa, a strategy which it said at the time would “give it a formidable presence in the region’s largest commercial hub”. It announced it would be employing around 140 local Kenyan staff.
Builders Warehouse specialises in home improvement and building material products and services. It is part of Massmart Holdings Limited, the South African firm that also owns retail brands such as Game and Makro. Massmart is, in turn, owned by US retail giant Walmart.
According to a report in the East African, the exit announcement “has left policy makers, investment analysts and the investing fraternity pondering the future of investments by South African firms in Kenya and the entire East African region”.
“The Kenya Private Sector Alliance (Kepsa), an umbrella body for private businesses in the country, acknowledges that the exit of South African firms from the country is an issue of concern and efforts are being put together to establish the specific issues impacting South African firms,” the newspaper said.
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It quoted Carol Kariuki, the Chief Executive of Kepsa, as saying she was “not sure why South African [companies] have found it hard to invest in Kenya, unlike others. We are trying to find out their unique issues as we deal with other business environment issues affecting business, as we always do”.
Referencing comments from local analysts, the East African speculated that South African retailers have failed to localise and connect with local consumers, contrary to other South African firms which have opted for mergers and acquisition to conquer the local market.
“While many South African companies understand the promising macroeconomic landscape of Kenya, they don’t spend enough time appreciating the equally important microeconomic elements of consumer behaviour [and] price sensitivity, all of which are aspects of behavioural economics. In the end they fail to connect with the customer,” said Ken Gichinga, Chief Economist at Mentoria Economics, a consulting firm based in Nairobi.
According to Trendtype, an emerging market intelligence and trading consultancy, Massmart was hit by the ongoing supply chain disruption of the pandemic, the sharp rise in the cost of building materials, the soaring cost of container freight through 2021 and much of 2022, the depreciation of the Kenyan shilling and the squeeze on consumer incomes, and moves by the Kenyan government to squeeze more revenues from importers of goods.
Like Shoprite (which exited Kenya almost exactly as Builders Warehouse opened) and Game, Builders Warehouse’s dependency on South African supply chains and private label has put huge pressure on its import model. Ultimately, with South African retailers increasingly moving back from expansion markets (Pick n Pay opening its second supermarket in Nigeria in October 2022 is a notable exception), Builders Warehouse was always at risk, Trendtype said.
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