How SMEs are diversifying to beat high costs, maximise profits

The number of Small and Medium Enterprise (SME) business owners embracing smaller stalls that accommodate multiple ventures under one roof is on the rise.

Business business owners appear to have resorted to the smaller stalls because they help them earn maximum profits.

The concept of shared spaces aims to generate higher revenues, ensure long-term sustainability, and enhance the overall entrepreneurial ecosystem.

The approach is a stark departure from the traditional model where entrepreneurs focus solely on one business venture in one premises.

According to a report prepared by Kenyatta University titled: Firm Characteristics and Growth of Small and Medium Enterprises in Nyeri County, the majority of SMEs are small-scale, employing fewer than 10 workers, whereas 70 per cent of these enterprises are sole proprietorships.

These enterprises are essential for employment creation, production, and further economic development according to the report.

Business owners like Moses Gordon, faced with the changing dynamics of the market and a decline in his movie customer base, made a strategic decision in 2022.

Driven by the rising demand for cost-effective alternatives and the desire to maximize the potential of his limited space, he subdivided his 2M by 2M stall to accommodate other ventures within his stall.

"I started my movie business in 2017, but during the COVID-19 pandemic, I witnessed a shift in customer behavior as they opted for home internet over my movie selections. Struggling to meet rent demands, I decided to innovate and diversify my offerings to increase my profits and remain sustainable,” he said.

He therefore ventured into computer accessories such as flash drives and hard disks, items which did not take up much space but were in high demand.

Gordon felt there was untapped potential within the limited space he had created and then started selling bottled perfumes alongside movies and phone covers.

“I introduced phone covers as an additional product; this strategic move not only catered to my existing customer base but also attracted new customers who frequented my stall for movies and perfumes. I also put up some lights and decorations on my stall to attract more customers,” he said.

He added that with these multiple ventures under the same roof, he had reduced his spending on rent and employee wages drastically.

"With all my ventures consolidated into one location, I now keep tabs on everything with ease, without having to employ staff to look after each store. It has become easier to analyze their performance, profits, and losses, and optimize my decision-making strategies compared to when I had to rent out several spaces and employ separate staff to oversee each shop," he said.

Just a few metres from Gordon's shop, Kelvin Kahugu of Karl Enterprises has converted a small space into a one-stop shop, offering an array of products.

From sportswear to trendy shoes, movies, and wallpapers, Kahugu has curated a diverse collection that caters to a wide range of customer tastes.

This strategic move has set him apart in the retail industry, as customers no longer need to hop from store to store to find what they're looking for.

"Seeing my customers hop from one shop to another in search of their desired products and services that I offered in different shops, gave me the inspiration to consolidate my ventures under one roof," he said.

He added that running two shops simultaneously led to losses due to paying double rent and paying his employees, causing a huge financial strain on his business.

"I had to look for a bigger stall so that I could accommodate all my businesses under one roof; previously, I used to spend Sh 22,000 per month on rent, but now I only pay Sh 16,000. Additionally, I don't have to employ anybody,” he said.

His business also relies on online marketing where he posts his new arrivals on his social media pages and word of mouth.

"During rush hour, I also set up some of my merchandise on the street to attract clients who are on their way home from work, and it helps attract walk-in and repeat business," he observed.

Prudence Sintoyia decided to rent a small shop to begin her venture of selling trendy women's clothes, makeup, and human hair this year.

She made a strategic decision to opt for a smaller shop space, due to the limitations of her budget and ensure that her business could thrive while minimizing operational expenses.

"I wanted to start my business and didn't have much capital, so I had to look for a small shop that was affordable. The big shop's rent is about Sh15,000, while the shop I have is 7k, which is very economical. I have utilized the space to the maximum,” she said.

The trend of smaller business spaces has also shaped the commercial real estate sector with more landlords in urban areas opting to partition their spaces into smaller stalls, rather than renting out large rooms as was previously the norm.

James Mwangi, a landlord said that he used to rent out his rooms, but the returns were not as promising as he had hoped, he realized that the demand for smaller retail spaces was rising.

"I noticed that businesses nowadays prefer more compact spaces that better suit their specific requirements. By dividing the rent shops into smaller stalls, I was able to accommodate multiple tenants, diversify my rental income, and attract a wider range of entrepreneurs," he said.

“Smaller, independent retailers are looking for affordable rental options that allow them to test their business models without incurring prohibitive overhead costs,” he added.

Mwangi added that by dividing larger retail spaces into smaller stalls or 'micro-retail' units, landlords can respond to the needs of smaller businesses while maximising rental revenue.

"Embracing the concept of 'micro-retail' units, landlords are revolutionizing the rental market by dividing larger retail spaces into smaller stalls. This innovative approach not only caters to the needs of smaller businesses but also maximises rental revenue, creating a win-win solution for landlords and tenants alike,” he said.