That many Kenyans are increasingly choosing online platforms for their shopping may be a good or bad trend depending on who you talk to. This has been brought to the fore by a new report on Kenya’s retail sector which notes that the shift from shopping physically from retail stores to making orders online, may result in reduced
demand for retail space in the long run as retailers will opt to save on costs for leasing retail space.
The report, released by Cytonn Real Estate, however states that “Kenyans still prefer physical shopping due to insecure delivery systems, cyber crimes and lack of proper physical addresses especially in rural areas necessitating the need retail stores.”
Kenya’s Real Estate Retail Sector Analysis by Cytonn Real Estate titled “Investor’s Perspective on Kenya’s Retail Sector” released on July 11, 2016 highlights the three key factors driving Kenya’s retail market in Kenya – that is a growing population, a rising middle class and improved technology.
On technology, the report states that improved technology has made goods and services available on demand through online shopping with sites such as Jumia Mall, Kilimall and Facebook, widening consumer reach, adding that availability of cashless payment systems such as MPesa, Airtel Money and MCoopcash have made shopping safe and convenient.
“Improved infrastructural developments such as improved roads, the SGR, electrification, and ICT have opened up new development areas such as Athi River and Ruaka. Completion of the Thika Super Highway has resulted in an influx of malls along the busy highway, while the Northern Bypass has influenced growth of Ruaka Town and construction of the Two Rivers mall,” notes the Cytonn report.
The Kenyan retail sector has seen the rise of various online shopping sites like Jumia, OLX and Kilimall in the recent past. The sites have grown rapidly over the recent years attracting a large number of visitors with Jumia estimating that approximately 2,000 people people visit its website daily, while OLX has approximately 2 million viewers monthly.
This growth is supported by technological advancement which has increased target market and hence the revenues. Kenya currently has approximately 26 million mobile money users, which represents more than half the adult population while expansion of formal financial services to the previously unbanked in Kenya, through mobile and agency banking, has increased the target market for the online stores. Additionally, enhancements in payment gateways have improved the security and improved customer confidence in online transactions while user incentive schemes such as free delivery, discount offerings on products on sale attract a larger number of people to the online shopping portals.
The report adds that online shopping sector is set for further expansion in the future as technology continues to advance and quotes a report published by Oxford Business Group in February 2016 which stated that 35% of retail retail in Kenya is formal with online marketplaces, targeting consumer-to -consumer trades. This is also playing the role of online-to -offline transactions where micro -businesses and informal retailers that cannot afford the more expensive shopping mall footprint use the platform to distribute their fragmented inventories.
The report also identifies various challenges encountered by online retailers. These include insufficient awareness of brands and electronic processes (which reduces their market share as despite them being suitable cheaper substitutes, consumers are not aware of this hence do not demand for their services), e-commerce platforms that do not have a local feel (in terms of currencies, languages, payment and shopping options and hence are not attractive to the local people limiting their revenues) as well as lack of trust and confidence in online payments among online shoppers (hence they prefer to go physical shops instead of online stores).
Overall, the report concludes that online shopping sector is set for further expansion in the future as technology continues to advance and incomes rise according people the luxury of phones, credit cards and internet all of which increase their ability to demand for these products coupled by the changing lifestyles with people’s desire for an easy life will also boost growth in this sector.