Builders exit is less than 3 years since its launch

Less than three years after being launched, Builders, a subsidiary of South Africa’s leading retailer- Massmart, is set to close down its store at the WaterFront Karen in Nairobi. This closure, will formally mark Massmart’s exit from the Nairobi Market, following the closure of Games Stores, another subsidiary, in 2022.

In a formal announcement, Builders noted that poor performance attributed to various factors including the inability to import inventory timeously due to stringent regulatory import requirements had impacted their competitiveness and resulted in financial losses.

 

This closure bucks a trend of exits by other Southern African retailers

Interestingly, this closure seems to buck a trend of exits from other Southern African retailers in the Kenyan retail market including Game and Shoprite eliciting speculation on market positioning as well as the retail opportunity in Nairobi.

 

Source: Estate Intel Research

While the formal retail sector in Nairobi is likely to remain subdued, bright spots still remain

Generally, rising inflation as well as currency depreciation in Nairobi have impacted on international retailers’ performance. For example, core inflation rose to a 4 year high in January 2023 at 4.3% while the Kenyan shilling further depreciated to a historic low of sh 124 against the dollar in January. As such, this has in turn impacted on retailer’s import capability as well as consumers purchasing power.

Source:Central Bank of Kenya

Still, as noted in a previous article, retail positioning and differentiation have been  key drivers of positive retail performance. As such, retail nodes such as Kilimani, Westlands and Karen emerged as the best performing in the first half of 2022 recording average rental yields of 9.7%, 9.0% and 8.9%, respectively, compared to the overall market average of 7.8% according to Cytonn research. On the other hand, Eastlands recorded an average rental yield of 5.9% compared to the market average of 7.8% indicating the role of location in retail performance.

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