Kenyan local retailers have been learning from new market entrants as opposed to feeling threatened. This is according to the Tuskys chief executive Dan Githua who believes that the existing local retailers have the ability to fight and retain their share of the market. In addition, he said the retail market has room for five more players of tuskys’s size considering that the current market penetration only stands at 20 to 30 per cent.
In an interview with Kenyan Wallstreet, Mr Githua observed that compared to the multinational retailers that have entered the Kenyan market, existing local retailers have been poor at managing costs, executing expansion strategies, managing the supply chain, and managing shrinkage. But with the added competition, local retailers have had to realign their businesses and strengthen their weaknesses.
At the same time, the local retailers have been learning from the new market entrants which highlights the positive role retail chains such as Carrefour and Shoprite are playing in the Kenyan market.
“The entry of these retailers is a good thing in the long-run because the market will mature,” Mr Githua acknowledged.
The New Operating Models
One of the things local retailers have learned from their foreign competitors is how to manage rental costs. In Nairobi for instance, rent prices are high with the cost ranging from Sh70 to Sh100 per square feet. This has been a challenge for local retailers who have been paying a fixed price on rent when business is good and when its not, Mr Githua said.
However, the new market entrants have come in with a new strategy where they agree to pay the landlord a given percentage of their sales for rent. That means that if sales decline due to reduced foot traffic to a mall, the rent will go down as well and the retailer will survive.
“By doing that, you are incentivising the landlord to be part of your business success, allowing the retailer to survive during hard times,” Mr Githua elaborated.
Mr Githua further noted that the ongoing customer reward scheme dubbed “Tuskys Gigantic Sale” has been well received by the market as customer footfall at the retailer’s stores has spiked by more than 60%. He says this year’s sale has been executed in a better way than they did last year.
