CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF STUDY
Retail in Nigeria was once confined to traditional open markets and small local storekeepers loosely referred to as the informal retail sector of the Nigerian economy which serviced communities. Between 1960 and the early 1980s, there were standard retail malls which operated chain stores across the country; their number reduced because of the harsh business environment and the decline in business in that era, leaving the country without standard malls for retail business.
This gap led to the growth of the informal or traditional retail market, which traditionally constitutes a formidable part of the retail structure in Nigeria.
Today, Nigeria is experiencing a tremendous shift to a more sophisticated structure as formal or organized retail continues to gain ascendency. The distribution chain and the organization of outlets continue to reflect those of a rapidly evolving economy as standards of living improve and as the population continues to snowball. In the past eight years, Nigeria’s population has grown from 150 million, as established by the population census conducted in 2006, to a country with an estimated population of 171 million people by 2013. In the midst of this, the middle class continues to expand even as 51 percent of the country’s population now lives in cities.
The rise of organized retail has been rapid in Nigeria in the last two decades. NBS data shows that between 2001 and 2004, the wholesale and retail sector grew by 10 percent per annum. By 2006, its contribution was 16 percent. In the first halves of 2011, 2012 and 2013, it contributed 15.58 percent, 17.05 percent and 18.44 percent of GDP respectively. The old or traditional retail system which is adjudged to account for almost 90 percent of retail activity in Nigeria has continued to decline because of government’s policy, changes in the composition of Nigeria’s population, rising income level and increasing sophistication of the Nigerian consumer. In the last decade, the stable political environment, consistently high oil prices, and rise in GDP have had positive impact on per capita income, which has in turn moved more Nigerians into the middle class. Today, more families shop together and organized facilities which meet their need are attracting more shoppers. Therefore, the old or traditional structure of retail continues to give way to the new.
More than ever, the Nigerian consumer is interested in a decent shopping environment, neatly-arranged and labeled commodities and the experience that goes with buying at an organized outlet.
Opportunities in wholesale and retail stem from the fact that demand has continued to rise. NBS data shows that based on the structure and level of development of the economy, the average Nigerian household spends as much as 80 percent of its income on consumables like food and drinks, clothing, transportation, shelter, education, electronics and power supply. The average amount devoted to consumption has played a major role in elevating Nigeria to the status of a 171 million-populated retail powerhouse on the African continent. Nigeria has evolved from being a country with 150 million population with no real mega retail store in 2006 to one with 171 million people who have about 20 mega retail stores in less than 10 years. The country has the capacity to support even more malls across its major cities.
1.2 STATEMENT OF PROBLEM
In shopping centers for instance, the rent paid by a tenant bears relation to the ability of thattenant to trade profitably from that location. This has always been a salient criterion but ascompetition has forced retailers to accept lower margins for their profit levels, the impact of‘cost’ on the profit equation has become more important. Retailers of Shopping Centers havebeen forced to look at the cost equation in terms of their space requirement. They aretherefore less willing to accept the level of rents in the market and may consider relocating ifthey feel that current rentals are too high for their cost requirement. This should mean that themarket will adjust to ensure that value in exchange (rental value) and value in use (worth tothe retailer) converge (French, 2000). Hence Sirmans and Guidry (1992) noted thatunderstanding the determinants of shopping center rents is important to the Estate Surveyorsand Valuers who are involved in market analysis and site selection of such properties.
Nevertheless valuers fail to account for variation between retail function and the impact ofindividual property factors on rental value. This potentially leads to misguided valuations. Indetermining the rental value of a subject property, inappropriate evidence may be undervaluedto determine a unit value even though in the market place the subject and comparableproperties belong to distinct tiers (that is the occupier of the subject property would not beexpected to make a bid for the comparable property). Also, valuers interpretations ofevidence may lead to over or under estimations of rents as the perceived impact of a factormay have a positive impact on trade and hence rental bid for one type of retailer and anegative impact for another. Hence Hager and Lord (1985) stated that “the success of avaluation relies extensively on personal knowledge, expertise and interpretation of manyvariables which exist”.
However, the complexity of the property price formation process requires an analytical approach which makes it possible to settle the cross-influences between the numerous dimensions affecting property values (for shopping centers) and to assess the marginal contribution of each attribute underlying property buying decisions (Des Rosier et al., 1996).Much work has been done in the determination of property values (residential and shopping centers) in the United Kingdom, United States and Australia (Trott, 1980; Fraser, 1988;Kihore, 1996). In Nigeria, very little effort has been made. The few that exist only looked atthe determinants of residential and office property values (Bello, 2000; Oladapo, 2000).
