NAIROBI: Clothing and household goods retailer, Deacons Kenya Limited, has sold its remaining 49 per cent stake in Woolworths Kenya Limited to South African company, Woolworths Holdings. The deal ends a three year marriage between the two.
Deacons made the announcement on December 17, and declared that the transaction will be completed by December 31. The proceeds of the sale will be received by Deacons on January 31, 2016, and will be invested in new franchises, stores, brands as well as funding its existing operations.
“The company will also continue to focus on expansion into new franchises, stores and brands,” Deacons said in a statement yesterday.
The two firms formed the joint venture, Woolworths Kenya in December 2013. The South African company used to supply its branded clothes to Deacons, which owns other retail brands such as Truworths, Identity, 4U2, Mr Price, Angelo, Adidas, Life Fitness and babyshop.
Deacons managed the franchise in Kenya. Many foreign companies that have in the past opened retail outlets in Kenya and preferred to ship their own management teams had failed, a pitfall that Woolworth Holdings wanted to avoid.
South African firms such as Supreme Furniture, retail chain Cash and Carry, Nandos and clothing chain Stuttafords had all relied on expatriate management and failed to crack the Kenyan market.
Woolworth Holdings has historically preferred trading under the franchise model where it would sell products to partner firms with limited involvement in the business. In September 2010, the firm decided to stop using this model, saying that it was becoming increasingly “more complex and expensive to operate a separate franchise business model with its own systems and processes”.
Deacons made a profit of Sh405 million when it first sold its 51 per cent stake in Woolworth Kenya in 2013. By relinquishing its current 49 per cent, it has now wholly given up on the Woolworth brand.
Deacons managers downplayed the impact of the sale, claiming that “the disposition will constitute less than 25 percent of Deacons net assets”.
After the Woolworth deal, Mr Price, the flagship Deacon’s brand has also previously threatened to be looking at ending the franchise deal and forming own company to feed the Kenyan market with its brands. Mr Price serves the lower end of the Deacons’ market and contributes more than half of its earnings.
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