The recent closure of three branches of Nakumatt Holdings, Kenya’s largest retail chain, is a culmination of many factors, writes ALI TWAHA.
In June 2009, when Nakumatt store opened doors in Uganda with its maiden branch at Yusuf Lule road on Oasis Mall, shoppers streamed through in large numbers. The traffic jam along the road, especially on weekends, was unbearable as the store ushered Ugandans to a new shopping experience.
Around the same time, Uganda was witnessing an influx of several Kenyan businesses, especially in the financial industry. For instance, Equity Bank had bought Uganda Microfinance Limited, while KCB bank was also in town. Other banks such as ABC Capital, which merged with Capital Finance Limited, entered Uganda and were later followed by the likes of CBA and Imperial Bank.
The retail chains that opened shop in Uganda were to ride on the back of the large influx of Kenyan financial institutions. But what appeared to have jolted Nakumatt to try out their luck in Uganda appears to have been the inroads that its main rival in Kenya, Uchumi, was having across the region.
Uchumi had launched its services in Uganda in 2005, and the retailer was recording growth in customer numbers. South African store, Shoprite, had already started operations in Uganda in 2000, opening the way for other regional supermarkets.
It is partly as a result of this that operators such as Nakumatt felt the need to expand outside Kenya. Opening outlets in Uganda was part of an aggressive expansion drive. After one year of operating in Uganda, Nakumatt acquired three branches of Payless supermarket in Bugolobi, Bukoto and Kabalagala.
The move by Nakumatt was seen as a reaction to Tuskys’ acquisition of Half Price and Good Price supermarkets as the battle for supremacy in Uganda’s large retail store intensified.
Two years after its launch, Nakumatt opened at least five branches. But around 2015, something appeared to hit the international supermarket chains.
Shoprite was the first to feel the sting; it closed its branch in Naalya. The cost of running Shoprite’s 35,000 square feet shopping floor area at Naalya, the largest it was running in Uganda, pushed its operation to the edge. In October, Shoprite signed a memorandum of understanding with Nakumatt to take over the Naalya branch.
EXPANSION PLAN
In the first five years of operation, Nakumatt walked a high line amid the growing competition and underperformance that saw its rivals such as Uchumi and Shoprite size down as a result of stiff cash flows.
In 2015, Uchumi’s chain of supermarkets closed down, leaving several customers, employees and service providers stranded. Initially based at Garden City, it spread out to several districts in a bid to shut out any local competition.
It was a poor strategy from Uchumi as the costs of production gobbled up whatever income that trickled into the company. While closing its Uganda franchise, Uchumi said the revenues from the Uganda and Tanzania units were too small to the group and yet the costs of keeping them afloat made no business sense.
Nakumatt had established a huge footprint in Uganda and the region as a whole. Nakumatt set up at least nine branches across Uganda alone and 60 in the region as of 2016.
Meanwhile, 2016 put several business entities to the test in the economy. The February elections in Uganda cast a lot of uncertainty that saw the shilling depreciate to its all time low and a general slowdown in the business environment.
Nakumatt experienced a reduction in traffic at some of its prominent locations such as Oasis Mall, Acacia Mall, among others. But Nakumatt also borrowed heavily for its expansion drive, trapping itself in a tight liquidity corner.
Last week’s closure of three major branches of Nakumatt at Acacia mall in Kololo, Village mall in Bugolobi and Victoria Mall in Entebbe by Knight Frank, a real estate manager, was almost seen as inevitable as the Kenyan retail store operated on borrowed time. The signs were always there as the shelves at Nakumatt increasingly became empty.
Management at Knight Frank explained that Nakumatt, as a result of its reduced traffic at its stores, was no longer an anchor tenant across the malls. An anchor tenant is one who takes on the largest space of the mall with the hope of attracting the most traffic.
Nakumatt was also preparing to open a branch at Ntinda, a few meters away from Capital Shoppers but was still struggling to make ends meet. Its hope to list on the Uganda Securities Exchange also remained on paper. The closure of the three branches brings the number of closed outlets to four as of June.
PROTESTS
In April 2016, workers of Nakumatt laid down their tools demanding better pay from their bosses. Some of the workers who spoke to The Observer then claimed they were massive discrepancies in salaries and demanded better pay.
Just like the workers, suppliers too, held tight onto their goods demanding settlement of their outstanding debts. The strike by suppliers left customers staring at many empty shelves.
In October, Nakumatt management admitted that the supermarket is in a challenging situation. The company’s managing director, Atul Shah, said: “Like any other business operating in this market, Nakumatt Holdings has faced a number of unforeseen [challenges] which range from a depressed economy, higher operating costs and extraneous factors.”
INVESTORS FEAR
To turn its situation around, Nakumatt is placing its “major” come back on fortunes of a new investor, who is yet to be named, according to reports.
According to Standard Media in Kenya, Nakumatt is still scared to sell some of its stake to investors. The entry of a private equity firm into Nakumatt, market experts say, may mark the last stand of a family-owned Kenyan retail business.
In court documents seen by The Observer in one of its defences in court, Nakumatt promised its suppliers and landlords that payments of arrears will be settled this year.
alitwaha@observer.ug
