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SA shop brands bloom in E Africa

Mar 31 2011 08:27 Reuters

Company Data

TRUWORTHS INTERNATIONAL LIMITED [JSE:TRU]

Last traded 66.97
Change -1.03
% Change -0.02
Cumulative volume 1717939
Market cap 28.30bn

Last Updated: 29/09/2014 at 04:28. Prices are delayed by 15 minutes. Source: McGregor BFA

WOOLWORTHS HOLDINGS LIMITED [JSE:WHL]

Last traded 68.01
Change -0.47
% Change -0.01
Cumulative volume 1930920
Market cap 69.02bn

Last Updated: 29/09/2014 at 04:28. Prices are delayed by 15 minutes. Source: McGregor BFA

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Nairobi - Shopping malls are springing up across east Africa faster than ever before as retailers seek to tap into a swelling middle class with growing disposable incomes and a limited choice of leisure activities.

At least nine new malls will be throwing open their doors this year across the region. Five of them, with a total area of 670 000 sq feet, are poised to open in Kenya - the regional economic powerhouse.

At weekends, cars crawl around parking lots at sprawling malls in the capital Nairobi in the hope of finding a spot so people can shop, visit food courts and cinemas, or just hang out in swanky cafes with wifi on tap.

"Prime retail centres will be in high demand because we now have more affluent shoppers and a growing middle class," said Paul Kavuma, head of Catalyst Principal Partners, a private equity fund that invests in consumer goods companies.

East Africa's economies have weathered the global financial slowdown and recent droughts and are now projected to expand by an average 5.2% in 2011 and 5.7% next year. Investors say that with these kinds of gross domestic product (GDP) growth rates in the coming years, the conditions are ripe for a rapid expansion of the retail sector.

"Consumer demand grows between two to three times the pace of a country's GDP growth. Spending across east Africa is growing at about 15% per annum," Kavuma said.

In neighbouring Uganda, construction of a 200 000 sq feet shopping mall, the country's biggest yet, starts this year.

While the Ugandan economy is less than half the size of Kenya, economic growth is expected to surge into double digits when oil production starts in earnest in the coming years.

In Tanzania, the region's second biggest economy, two new malls will be built in the commercial capital and port city of Dar es Salaam.

In total, construction of malls is likely to cost at least 5 billion shillings ($58m) this year, according to Maina Mwangi, commercial director at real estate agency Knight Frank.

Expensive brands

According to Humphrey Moshi, an economics professor at the University of Dar es Salaam, the explosion in mall construction can be attributed to massive pent-up demand for consumer products such as electronic gadgets.

Plush shopping malls in Nairobi all have several outlets selling the latest mobiles while flat-screen TVs and home cinema systems can be found in supermarkets and electronics stores.

The boom in swanky malls is also attracting international retailers and well-known brands that need a concentration of well-heeled shoppers to justify their investment.

"We would have expanded faster, by about 30%, if there was adequate presence of malls," said Muchiri Wahome, chief executive at Deacons.

Deacons is a Kenyan firm with 25 franchise outlets for retailers such as South Africa's Truworths International [JSE:TRU] and Woolworths Holdings [JSE:WHL].
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