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Retailers hit by naira devaluation

By on March 10, 2015

The effect of the naira devaluation and the recent unification of the foreign exchange markets are taking their toll on retailers in Lagos state, a report has shown.

This had resulted to a sharp drop in stock levels and shelf inventory as inventory build-up slowed by 25 per cent as of February 2015, compared with 2014 figures. In fact, the report stated that smaller retailers are feeling more of the effect of the naira devaluation.

In addition, it pointed out that postponement of the general elections also affected the activities of retailers.

Managing Director/Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane stated these in his monthly economic news and views presented at the Lagos Business School’s executive breakfast meeting for March 2015.

The report titled: “Postponement or Devaluation: A Choice Between Bad and Worse,” was made available to THISDAY at the weekend.

It showed that customers were switching shopping habits.

“Lagos retailers are adjusting to the currency devaluation. The impact has been a sharp drop in stock levels and shelf inventory. February inventory build-up was 25 per cent slower than 2014. The election postponement disrupted the order book. Retailers have been slow to re-price shelf goods and the stiff consumer resistance and down-trading is hurting retailers’ margins,” he added.

Furthermore, Rewane stated that impulse buying was reducing as weekly needs were taking over from daily purchases. He revealed that supermarket traffic dropped by approximately 20 per cent in January and February. This, is however, expecting to pick up again before the Easter break.

“Week-day traffic to malls is sharply lower. The cash purchases have increased relative to electronic and card payments. The CBN relaxation of the cashless policy is turning the clock back,” he added.

Commenting on activities in the real estate sector, he revealed that some landlords in Lagos now insist on dollar rental payments.

“Reinforcement of monetisation of accommodation allowance is affecting demand for luxury apartments. Employees prefer to use accommodation allowance to develop their own properties. The demand for short let apartments by foreigners is increasing and it is cheaper than staying in hotels.

“Unexpectedly, residential vacancy factor in Victoria Island declined to 26 per cent in February as there is a slight reduction in rents. Commercial vacancy factor also down to 13 per cent. Residential vacancy factor in Ikoyi is down to 10 per cent, but commercial vacancy factor went up to four per cent.

This reflects upcoming commercial developments in Ikoyi. Lekki vacancy factor was unchanged along the Admiralty way,” he added.

Furthermore, he forecast that the demand for urban properties would decline as a result of the sharp fall in government’s revenues and devaluation.

However, the researcher argued that the aviation sector globally remains the greatest beneficiary of the oil price crash as 40 per cent of direct operating costs is jet fuel.

“Airline stock prices increased 40 per cent in 2014. In January airline shares were up one per cent. The recent recovery in oil price has spurred a massive sell-off. The airline stocks are still largely positive.
Airline capacity in available seats accelerated in December, still below passenger demand growth,” he stated.

He listed higher fares as one of the impact of the naira devaluation, saying that most carriers now operate at slowdown in traffic. Premium traffic is down by approximately 20 per cent. “Bookings for April and May are sharply lower. Load factors are expected to decline. Discount fares and promo deals are already being offered,” he said.

 

[ThisDay]