The retail sector in Kenya has experienced significant challenges due to reduced consumer purchasing power, driven by escalating commodity prices. The latest ILAM Consumer Spending Index for the second quarter of 2024 reveals a stark picture, with businesses in house fittings and restaurants and bars witnessing the steepest sales declines of 80 percent and 55 percent, respectively.
Interestingly, not all sectors have been equally affected. Clothing and apparel stores have reported an increase in sales, suggesting that while consumers are cutting back in some areas, they are still willing to spend on specific items, possibly driven by necessity or seasonal demands.
Regional Disparities
Nyeri and Kisumu have been the worst-hit regions, with traders struggling as sales plummeted by 82 percent and 78 percent, respectively. This sharp decline is particularly concerning given the vital role these cities play in regional commerce. Despite this, the survey indicates an overall decline in sales across all sampled regions, including major cities like Mombasa, Nairobi, and Nakuru.
Richard Muriithi, Senior Portfolio Manager at ICEA LION Asset Management, noted that while Nyeri and Kisumu experienced the highest sales declines, the trend of reduced consumer spending is evident nationwide. This widespread decline underscores the broader economic challenges facing the country.
Consumer Spending Trends
The survey also highlights some intriguing trends in consumer behavior. Despite the general downturn, individual spending saw an improvement, primarily driven by women and consumers aged between 26 and 35. This demographic has shown a resilience that contrasts with the overall economic gloom, perhaps reflecting different spending priorities or financial management strategies.
In terms of socio-economic categories, the lower middle-income segment recorded the most significant improvement in spending trends during the second quarter. Conversely, the lower-income segment experienced the most substantial decline. This divergence suggests that while some consumers are managing to maintain or even increase their spending, others are feeling the pinch more acutely.
Income and Spending Dynamics
The report paints a complex picture of income and spending dynamics in Kenya. While 87 percent of respondents made purchases using their own income, 13 percent relied on credit, indicating a reliance on borrowing to sustain spending levels. Furthermore, individual spending rose by 11 percent, largely attributed to the higher cost of items rather than an increase in the quantity of goods purchased.
The decision to cut down on spending has been primarily driven by flat incomes over the review period. Half of the respondents reported static income levels over the past year, while 30 percent indicated lower income. Less than 20 percent saw their incomes rise in the second quarter of 2024 compared to the same period in 2023, a deterioration from the first quarter of 2024, when 25 percent of respondents noted increases and decreases in their income.
Sectoral Impact
The ILAM Consumer Spending Index also reveals sectoral disparities in income changes. Respondents working in the manufacturing and education sectors had the highest proportions of improved incomes, whereas those in trade, transport, and logistics reported the largest proportion of reduced incomes. This sector-specific impact highlights the uneven economic recovery and the varying resilience of different industries.
Conclusion
The ILAM Consumer Spending Index serves as a reliable indicator of the current state of the Kenyan economy. The data reflects a challenging economic environment characterized by rising commodity prices, reduced purchasing power, and significant regional and sectoral disparities. As the country navigates these economic headwinds, targeted interventions may be necessary to support the most affected sectors and regions, ensuring a more balanced and inclusive recovery.
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