Is Nigeria viable for SA companies?
Woolworths is the latest South African company to abandon Nigeria.
JOHANNESBURG - Questions are being asked around the viability of South African investment in the rest of Africa following the exit of Woolworths in Nigeria.
The retailer cited high rent and duties as well as difficulties in marketing to consumers in Africa's most populous country.
Analysts said the most basic issue for the Cape Town-based firm was marketing to wealthy, mobile and brand-conscious citizens.
Woolworths failed to build a big brand in Nigeria.
South Africa-Nigeria Chamber of Commerce (SA-NCC) executive member Dianna Games says some companies are too optimistic about their prospects on the continent.
"I believe people are way too starry-eyed about the rest of Africa," says Games, warning of "significant challenges" facing any company planning to expand into Africa's second-largest economy.
She also says it's too easy to assume that a company's withdrawal is because of a problem with the country rather than companies themselves.
"What tends to happen is the country comes under fire rather than the company's strategy in that country," says Games.
She adds poor marketing tactics are a frequent downfall.
"Many South African companies tend to believe that they don't need to advertise themselves because people know who they are because they are household names in South Africa."
Lagos-based Financial Derivatives head Bismarck Rewane agrees.
"Nigerians don't know Woolworths. They've heard the name, Nigerians associate it with the downmarket British retailer that went bust."
Games says of the few Nigerians who do know Woolworths, many didn't even realise it had opened shop in the country.
Woolworths opened its first store in Nigeria in late 2011, following in the steps of other retailers such as Shoprite.
The company grew to three outlets selling clothes and general merchandise.
In its latest announcement, Woolworths said the investment was "deemed no longer viable" after several attempts to improve the performance of its stores.
Games says the high costs cited by Woolworths such as expensive rentals and difficulty in the supply chain, cannot be the only reasons for the withdrawal.
Many other companies, including cellphone giant MTN, have done well there despite challenges.
Games believes research needs to be conducted within the country.
Replicating South African models and strategies is not necessarily the best plan, she says.
Games says Woolworths probably didn't give enough thought as to how Nigerians would respond to the company and how their lifestyles differ.
There are very few shopping malls in Nigeria, she says, and thus very few people in Nigeria actually shop regularly at malls, unlike in South Africa.