This archive report was first published on 9 July 2020.
As the COVID-19 pandemic continues to reshape the retail landscape, Kenya's retail sector is on the cusp of a major transformation. The past few years have seen local giants like Uchumi and Nakumatt exit the market, while international players like Shoprite and Choppies reassess their business models.
Thursday, July 9, 2020, marked a turning point in the retail sector, with the pandemic accelerating the shift towards online sales and direct-to-consumer relationships. Many consumers are now opting for doorstep deliveries, posing a significant challenge to large Fast-Moving Consumer Goods (FMCG) stores, middle-tier stores, and kiosks.
The concept of creative destruction, as described by Joseph Schumpeter, is at play here. This process involves the incessant revolutionisation of the economic structure, destroying the old and creating a new one. In the retail sector, this means that stores will have to recreate themselves to remain relevant.
Some retailers will focus on production, while others will add value or aggregate and distribute products. The biggest casualties will be the large number of middlemen in the supply chains, which will be disrupted, leading to lower consumer prices and potentially even the industrialisation of African countries.
However, governments should avoid intervening in this process, as it may be painful but ultimately beneficial in the long run. The transformation may also formalise the informal sector, as players seek new opportunities in the wake of changes.
Physical stores may be disrupted, with some retailers shifting to warehouses that will serve as fulfilment and distribution centres. The real estate sector may suffer a short-term setback due to the realignment of stores from the current legacy arrangement to future stores.
Existing retail outlets will need to adapt to the changing landscape, leveraging technology to enhance the in-store experience. For example, Alibaba's offline retail store, Hema, is working towards the convergence of online and offline retail, using mobile apps to provide customers with product information and recipe ideas.
Locally, Jumia is building partnerships with aggregators and turning small shops into fulfilment centres, similar to JD.com's strategy of creating rural stores that serve as e-commerce hubs.
The future of retail is here, and it is disrupting business models and supply chains. The only option for existing stores is to embrace technology and change models to survive.
