South African retailer Woolworths has closed its three pilot stores in Nigeria, citing poor profits and a highly challenging business environment, according to a report in  SACommercialPropNews.

The three stores were “unable to sustain a compelling product and value proposition which represents the brand well, and meets the needs of the Nigerian customer in a climate that is hot throughout the year,” said Woolworths CEO Ian Moir.

Some challenges of doing business in Nigeria included high rental costs, duties and complex supply chain processes, Moir said.

Woolworths launched two stores in Lagos in March 2012 and a third in Enugu in October. It operates more than 400 stores with 59 of them in 11 African countries outside South Africa including Botswana, Namibia, Lesotho, Swaziland, Ghana, Kenya, Tanzania, Uganda, Zambia and Mozambique. The company said its Africa strategy remains unaffected by the Nigerian closures.

Woolworths’ failure in Nigeria shouldn’t put off other South African companies from trying to do business in Nigeria, said Norman Sander of Broll Nigeria, which manages Ikeja City Mall in Lagos.

Broll said he expects more South African retailers, especially discount retailers, to seek opportunities in the Nigerian market.

“Yes, doing business in Nigeria is a challenge,” Sander said, “but if you can offer middle class Nigerians the right price, product, service, quality and choice, the sky is the limit.”

Shoprite is experiencing strong trade at Ikeja City Mall, Sander said. The South Africa-based retail and fast food company operates more than 1,200 corporate and 270 franchises in 16 African countries.

South African retailers should be prepared to change their models for the Nigerian consumer, Sander said. If they do so, they’ll be rewarded in Nigeria, where consumers are brand loyal and value good service, which is in short supply.

The Nigerian market is vastly different South Africa and neighboring countries, Sander said. “Research is essential to understanding this unique set of consumer needs and norms, before venturing into this exceptional territory.”

Despite the opportunities, retail in Nigeria is not for sissies, Sander said. “Mall rentals are high because of infrastructure and development costs which, in turn, demand high turnovers.

“Infrastructure is poor, red-tape is plenty and officials often interfere. The supply chain also takes far greater focus, with a host of potential obstacles to be navigated.”

Retailers need excellent warehousing to overcome shipping issues in Nigeria, where goods
don’t move as fast as they do in South Africa, Sander said.

Woolworths is good at allocating capital and the company said all along that its three stores were just a trial, said Daniel Isaacs, equity analyst at 36ONE Asset Management.

“Pulling out at this point means that they’ve done their model, they’ve looked at the returns possible and they’ve decided that they can get better returns for shareholders by
investing into other parts of Africa and South Africa,” he said.

A retailer like Mr. Price is probably better placed to move further out into Africa, Isaacs said. “In the African countries where you have a much lower gross domestic product per
capita, affordability is a huge concern, and you can’t, at least not for a long time, institute the same credit services you have here.

“It will be more interesting to see where the other relatively higher-priced guys like Foschini and Truworths stand and what moves they now make in terms of Nigeria,” he said.