Financial woes: Fashion retailer Deacons put in receivership

Listed fashion retailer, Deacons, is officially in the red and is now seeking protection from creditors.

This comes just two years after its shares were sold to investors at the Nairobi Securities Exchange.

Directors of the firm have announced their intention to call in an administrator who would try to resuscitate the struggling business that deals in the middle to high-end clothing.

It marks yet another blow for the NSE where a significant portion of listed companies have encountered financial hurdles, while others have been bought out and have opted to be delisted.

”The directors of the company upon satisfaction of the statutory requirements intend to appoint Messrs Peter Kahi and Atul Shah… as joint administrators of the company,” said Deacons Managing Director Muchiri Wahome in a statement acknowledging the firm’s financial woes.

And to pacify anxious shareholders, he said no insolvency proceedings had been instituted so far, offering hope that the business could still be turned around.

“Administration is one of the rescue procedures in the law which is available to a company facing financial distress,” said Mr Wahome.

Senior management may have to leave their positions to allow the administrators to restructure the firm’s finances.

This may be in the form of downsizing of staff and closure of loss-making branches.

It is expected that the administrators would help craft a way out for the retailer whose shares were valued at Sh0.45 a piece at the NSE, after wiping off 97 per cent of the initial listing price.

In essence, investors who bought in during the firm’s listing in August 2016 have only retained three per cent of their wealth.

The entry of administrators is a very material development, which could erode the firm’s valuation.

Already, the firm has lost its partnership with South Africa’s Mr Price following a disengagement earlier this year where it was paid Sh133 million for the divorce, money that would be drowned by the soaring operating losses.

Trouble for the retailer has been piling fast owing to stiff competition from cheaper informal outlets, compounded by the closure of several major supermarkets which fed it with walk-in customers.

Direct competitors

Clothing stores in almost every street in major towns where Deacons operates in a largely-informal economy mean little business for structured retailers.

Deacons target market demands that it occupies prime space in major shopping malls such as the Two Rivers, where rents are substantially higher compared to the tiny stalls which are its direct competitors.

As a result of the higher operating costs, Deacons can only price its products at a higher price to guarantee profitability.