By MARYANNE GICOBI

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The woes of Kenyan retailers have hit major listed companies, some of which have posted profit warnings, citing the failing retail market.

Data from companies listed on the Nairobi Securities Exchange (NSE), which do business across East Africa, shows that at least two of the seven companies that have posted profit warnings blamed their challenges on debts by or closure of retail outlets.

Lifestyle clothing retailer Deacons East Africa and manufacturing firm Flame Tree Holdings issued profit warnings, saying their full-year net earnings would be less by at least a quarter from the previous year’s.

“The expected drop in profits is mainly attributed to the non-performance and closure of some branches of major anchor tenants in several shopping malls, which reduced traffic into the shopping malls,” said Deacon’s company secretary JLG Maonga in a statement to investors.

Deacons operates in Kenya, Rwanda, Mauritius and Uganda.

The major anchor tenant Deacons was referring to is Nakumatt Supermarkets, which has closed its major stores in the region.

Nakumatt, whose annual turnover would hit $700 million at its peak, was the main tenant in Nairobi’s major malls.

The closure of the stores, stockouts at its outlets and huge debts to suppliers in Kenya, Uganda and Tanzania led to a considerable drop in foot traffic in the malls, affecting other stores located in the same premises.

The 2017 Africa Prospect Report cited reduced spending as one of the major problems the retailers were facing in East Africa.

Trade receivables

Flame Tree too issued a profit warning, attributing it partly to the collapse of some retailers and unpaid debts by retail stores.

“The expected decline is primarily attributable to writeoffs made on trade receivables held by leading supermarket chains in Kenya,” said Flame Tree’s CEO Heril Bangera.

Trade receivables are amounts billed by a business to its customers when it delivers goods or services to them.

The Flame Tree Group, which is listed under the Growth and Enterprise Market Segment, manufactures and distributes goods in Kenya, Rwanda, Ethiopia, Mauritius, Mozambique and UAE.

Some of the products it distributes through retailers are plastic tanks, beauty products, snacks and tiles and bathroom products.

Nairobi Business Ventures (NBV), which runs a chain of shoe stores under the brand name KShoe, posted losses. NBV operates four out of its six outlets in malls, targeting the upper middle class market.

Creditors

More than 90 Kenyan creditors have gone in court seeking more than Ksh4.1 billion ($40 million) from Nakumatt Holdings.

Suppliers in Tanzania have also felt the pinch from the downfall of the supermarket chain.

The country’s Industry, Trade and Investment permanent secretary Adolf Mkenda said it owes suppliers Tsh1.6 billion ($720,000).

In Uganda, the retail market has also been affected by closure of Uchumi and Nakumatt outlets, with liabilities totalling Ush159.8 billion ($44.7 million), in unpaid rents and taxes as well as debt to suppliers. 

Uchumi closed down four branches in Tanzania and six in Uganda, leaving more than 900 workers jobless and suppliers in the respective countries with $3.5 million and $2.5 million holes.

In Kenya, Uchumi is in the red and owes millions of dollars to its suppliers. It has said it will fully settle all debts by the end of March after it sells a 20-acre land.

The Retail Trade Association of Kenya report for September 2017 showed that the other major retailer, Tuskys, owed suppliers $300,000, while Naivas and Chandarana owed $260,000 and $100,000 respectively.

The Kenya Association of Manufacturers (KAM) says that once the retail sector is hit, the whole economy suffers:

“Unemployment rates skyrocket, supply chains weaken, causing small and micro businesses to shut down. There is an increased inflow of imports, and exports are curtailed, because businesses will be operating at diminished capacity; the economy continues on a downward trajectory; and the overall quality of life for many is affected,” said Flora Mutahi, KAM chairperson.

Telltale signs

According Ms Mutahi, wholesalers are also feeling the impact of the failing retail sector, recording low sales, which effectively means they cannot pay their suppliers on time. Experts are now advising suppliers to closely monitor the performance of retail outlets, especially where credit terms apply.

“If they are operating in a declining sector or have cancerous management problems, they will soon not be able to pay and you will follow them downhill unless you take action,” said Ed Hatton, a leading South African marketing consultant.

Global research firm Stratlink says some of the telltale signs of trouble in a retail chain are late payments for supplies and paying for goods in cash, which point to an underlying cash flow problem.

According to analysts, wobbling retailers will have ramifications on the Kenyan economy, which has slowed to an average growth of 5 per cent annually in recent years.

And now, big international supermarket chains are seeing an opportunity in Nakumatt’s downfall, with Shoprite and Carrefour and local firms Naivas taking up Nakumatt’s leases in prime shopping malls.

Finance Cabinet Secretary Henry Rotich has said that while the government does not want to interfere in private businesses, it is looking at how to protect suppliers from non-payment so that debt does not build up along the chain.