Ten million pairs of shoes per year and growing. That was the ready market envisioned by founders of the first footwear firm listed at the Nairobi Securities Exchange (NSE) in 2016.
Four years later since the hyped listing, the dream for Nairobi Business Ventures (NBV) has ended in a baffling trail of losses.
The retailer, which operated the KShoe brand and sold leather accessories, recorded zero sales in the 2019-20 financial year, posting a loss of Sh39.5 million.
Last year, it shut down its two remaining stores owing to a cash crunch.
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NBV once operated six KShoe stores at the capital city’s prime locations and planned to open 12 in five years.
It also harboured dreams of becoming a large scale leather manufacturer, an announcement that at one point made its shares soar.
“Our ultimate goal is to have our chain of retail outlets. That means create markets first then go back and manufacture within Kenya,” said founder and Chief Executive Vasu Abotula in a 2018 media interview.
Now, trading of the firm’s share has been suspended for a month at the NSE ahead of the entrance of a strategic investor to recapitalise the business.
The shoe and leather business dream is now dead with the investor – Delta International FZE – moving NBV into industrial production and away from consumer goods.
Delta, an infrastructural and industrial conglomerate operating across the East African region, is set to acquire an 84 per cent majority stake at NBV for Sh83 million.
The firm has also found a smooth opportunity to enter Kenya’s capital market by taking over the distressed shoe firm.
Incorporated in Dubai, Delta is known for its chemical manufacturing business, Shreeji Chemicals.
But with the new acquisition it says it will diversify into cement making.
“Once acquired by Delta, NBV shall commence importation of clinker (raw material for cement manufacturing) and progress towards clinker and cement manufacturing with an annual capacity of one million tonnes per annum,” said a circular to NBV’s shareholders on the investor's plans.
Kenya has a competitive cement market dominated by the likes of Bamburi and National Cement Company.
Despite the coronavirus disruptions for the better part of this year, official data shows cement consumption in the country rose 11 per cent with 4.37 million tonnes consumed, up from 3.95 million in a similar period last year.
Glass manufacturing is also on the cards for Delta and NBV in light of a global initiative to ban single-use plastics, shareholders were told.
“Serious viability studies are being undertaken to explore this opportunity,” said the circular.
NBV acting board Chairperson Sheth Harshard described the period between March 2018 and March 2020 as a “nightmare” for the firm and other Kenyan retailers.
He cited challenges “beyond their control” such as an economic slump, banks' credit squeeze and low consumer spending owing to job losses.
“Despite serious efforts, NBV’s management could not retain its retail business. The situation was so dire that the company could not even hold the general meetings of members to present the audited accounts at regular intervals,” said Mr Harshard.
Since listing, NBV has not broke even, with shareholders missing dividends all the years.
Observers had also speculated that retail was not sufficient enough to secure NBV’s success.
The last few years have seen Kenya earn the moniker of 'retail graveyard' following the collapse of giant supermarkets and fashion stores.
Clothes retailers such as Deacons fell spectacularly and Jade Collections is now trimming its branch network.
The blame, among others, has been primarily put on importation of second-hand clothes whose popularity government has been unable to tame.
Even in shoes, second-hand footwear eats up almost half of the market.
Since NBV listed, four local supermarkets have collapsed including Nakumatt and Ukwala, while Uchumi and Tuskys are currently unraveling under heavy debt.
NBV's Abotula cited these retail woes as one of the reasons that had seen the firm move from consumer goods to infrastructural and industrial products.
“As far as the future outlook is concerned, NBV has recognised the serious challenges the Kenyan retail sector is facing and has opted to strategically change direction,” he said.
Abotula said retailers are paying a “heavy price” for the turbulent period from April 2017 to March 2020.
Since 2017, NBV has only made losses, recording negative sales growth that prompted the search for an investor.
“This continued negative performance led NBV management to make drastic decisions such as inviting financially strong and highly successful business groups to revive and grow NBV,” the CEO said.
NBV began as a shoe distributor, importing from China and India, and its leather accessories portfolio included items such as belts, wallets, purses and bags.
KShoe was derived from “Kenya Shoe”, highlighting the heady ambitions the firm had to dominate the footware market.
In its annual general meeting next month, shareholders will be expected to approve the proposed issue by NBV of the subscription shares to the investor to raise Sh83 million.
On completion of the issue, 415,000,000 shares will be allotted to Delta.
The cash will strengthen the balance sheet and inject working capital for the new strategy.
"The pricing of the issue was arrived at from a negotiation process taking into account the need to clean up NBV’s balance sheet and the need to inject working capital in order to set NBV on a new strategic path," said the firm.
NBV’s top 10 shareholders own 85.4 per cent of the firm’s issued share capital, with Abotula being the second largest with a 19.47 per cent stake.
In 2016, NBV listing was done under the Growth Enterprise Market Segment (Gems) of the NSE.
It listed 23.6 million shares with a share price of Sh5 and the company was valued at Sh118 million.
At one point, especially when it announced manufacturing intentions, the share was at Sh8.
Now, after its suspension last week, the share had closed at 71 cents.
The Gems section that was launched in 2013 has only attracted five firms since then.
It was expected to list 19 firms by 2017 and 39 by 2023.
KShoe joined Home Afrika, Kurwitu Ventures, Flame Tree Group and Atlas Development in the segment.
Delta International is owned by Haresh Vrajlal Damodardas Soni and has been investing and operating in East Africa for about 10 years.
As part of its transport and logistics business, the firm is planning to set up service and maintenance stations for every 200 kilometres between Mombasa Port and Kampala in Uganda.
The firm is also in the aviation business, dealing with air cargo and aircraft hangars.
It also plans to set up a multi-specialty hospital at its Red Hill property in Nairobi as well as other real estate projects under its Delta Holdings subsidiary.