- Since Uchumi started collapsing from 2015, Nakumatt, Deacons, Choppies and now K Shoe (Nairobi Business Ventures) have all experienced turbulence in the years that followed.
- The death of Kenyan retailers has been mainly the effect of debt, especially to suppliers who finally said enough was enough and cut stocks leaving empty shelves.
It is almost certain that every year a Kenyan retailer will bite the dust as if there is a generation curse emanating from the woes of the country’s first chain store, Uchumi Supermarkets.
Since Uchumi started collapsing from 2015, Nakumatt, Deacons, Choppies and now K Shoe (Nairobi Business Ventures) have all experienced turbulence in the years that followed.
The death of Kenyan retailers has been mainly the effect of debt, especially to suppliers who finally said enough was enough and cut stocks leaving empty shelves.
With the Competition (Amendment) Bill, 2019 that seeks to standardise supplier contracts to tame buyer power, including terms of payment, payment date, interest payable, mechanism of dispute resolution and conditions of contract termination or variation, more retailers are about to face challenging times.
The Act provides that all buyers and suppliers develop and adhere to an industry code of practice, which was signed at the beginning of the year. In instances where the code is breached by either party, the matter can be escalated to the Competition Authority of Kenya (CAK).
“You seem to be stuck at that point two years ago since Nakumatt had challenges, a lot has been put in place since then,” Wambui Mbarire, Chief Executive, Retail Trade Association Kenya said.
“We have looked internally at corporate governance, the structure of cash flow management which was the biggest challenge, inventory management and rationalisation of stock so that we do not just buy the stock that supplier bring us but what can be sold,” she said.
Ms Wambui said the issue of outstanding debt has been at the centre of reforms but at any given time retailers will always owe suppliers.
“There has been a misconception about how much debt is outstanding but the issue is what is due and unpaid. We will never clear all the debt. We operate a credit business and not a cash business,” she said.
Suppliers pull the plug from retailers mainly because of their past experiences, where they have been taken on a ride in unviable turnaround plans to save ailing retailers only for them to throw good money after bad money.
Nakumatt was given a lease of life when court granted it administration and it managed to keep Nakumatt Mega Prestige, Lavington, Kisumu, Embakasi and Nakuru branches. It now appears it has sold what was left of the six branches to rival Naivas Supermarket leaving suppliers who were hopping to be paid in the limbo.
Nakumatt Administrator, Peter Kahi, was supposed to have convened a creditors meeting to inform them of the rescue mechanism he had in place. The first meeting in 2018 became chaotic and was called off. A second meeting called sometime this year was canceled last minute.
“Every passing day, it is dawning on the creditors that the chances of recovery of even a portion of their debts are becoming a mirage. Understandably, majority have lost hope. It would appear that the Act has not achieved its intended purpose if the case of Nakumatt is anything to go by,” he said.
Uchumi had promised suppliers it had a sound plan including selling of land to raise funds to pay off debt and boost cashflow, cutting employee numbers and freezing old debt while processing suppliers cash out of an escrow account controlled by management and suppliers.
The ailing retailer which owes suppliers over Sh3.6 billion and lenders another Sh3 billion, failed to execute the escrow account only to turn around and ask for a debt waiver after the initial rescue plan failed.
It is no wonder that Botswana retailer Choppies had trouble convincing suppliers to bring back their goods even after it brokered a deal with the Association of Kenya Suppliers (AKS) for members to resume supplies.
Choppies pledged to release 50 per cent of money owed to creditors while the other 50 percent would be split into two tranches and paid within three months after every six weeks.
For retailers who go into distress there is little reprieve that the market has seen in trying to recapitalise besides forcing suppliers to take a hit.
Nakumatt made a failed attempt to get rescued by Tuskys which pledged to guarantee as much as Sh3 billion of debt and provide Sh650 million in additional capital and restock seven key branches in Nairobi and Mombasa.
CAK rejected the application on wrong filing which means a rescue bid by rival retail is yet to be tested.
“The parties filed an application under a section of the Competition Act which was not relevant to the transaction that they envisaged. The Authority promptly advised the parties to resubmit the application under the relevant section of the law but they did not do so. In instances where a party, or parties, to a merger transaction is proven to be under financial distress, the Authority fast-tracks the review of such applications, but within the provisions of the law,” CAK said in a statement.
The Competition (Amendment) Act, 2019 is meant to address scenarios where buyers sell products delivered to them, but fail to honour payments to the suppliers or delay payment unreasonably. The amendments to the law introduces minimum requirements in contracts between buyers and suppliers such as terms of payment, payment date, interest payable, mechanism of dispute resolution, and conditions of contract termination or variation.
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