All under one roof and in five minutes on a Tuesday marked by uncertain weather, creditors voted to dissolve what was once East Africa’s biggest supermarket.
Nothing could lift the gloom. Not even the elegiac Swahili gospel song asking God to “show His face” that was playing in the background during the voting process.
Nakumatt Supermarkets died that day last week at Oshwal Centre, smack opposite the uncleared rubble of Nakumatt Ukay, one of its iconic branches that was brought down by bulldozers in 2018 for standing on riparian land.
And most of the creditors, who are owed Sh38 billion, who voted for liquidation might just walk away empty handed, their investment forever buried.
The creditors, made up of among others suppliers, landlords and banks, huddled together in groups, their whispers drowned by music.
Some, with the final audit report tucked under their armpits, ached for re-assurance from the court-appointed administrator, Peter Kahi, of PKF.
And when Kahi lifted the metal box - popular with boarding school students - to signal the end of the voting process, 92 per cent of the creditors had agreed to liquidate Nakumatt.
The hopeful still believed they would get back some cash after the winding up, numerous others boycotted the vote.
Atul Shah, the founder and managing director of Nakumatt, was nowhere in sight as majority of the creditors demanded that he and the other directors be investigated and a forensic audit done to find out if they had transferred the supermarket’s properties to themselves.
Kahi reported that Shah and his son received unsecured and interest-free loans totalling Sh1 billion from the business, which they were yet to repay and that the family owns 11 buildings and property worth Sh3.7 billion.
The Nakumatt fiasco once again brought to the fore the precarious nature of Kenya’s retail business, where success is eyed with uncertainty.
Retail is a ruthless business, competitive and unforgiving when mistakes are made. Thousands of livelihoods have been ruined by it.
At least three big supermarket brands have exited the Kenyan market in five years including Ukwala, Choppies and Ebrahims.
State-owned Uchumi Supermarkets is hanging by a thread and staring at an imminent death. The retailer spent a better part of 2019 pleading to have part of its multi-billion debt forgiven to enhance its survival chances.
In March, Uchumi filed a creditors plan in the High Court laying down steps needed to save it from collapse. It owed suppliers over Sh3.6 billion and lenders Sh3 billion.
Once thriving fashion and clothing retailer Deacons East Africa was also put under administration in 2018, and exposes creditors to a potential loss of Sh1.9 billion.
At the same time, others seem to be flourishing and are in an expansion wave.
Last year, mid-tier Quickmart opened its 11th store on Waiyaki Way, and a looming merger with Tumaini can only create a mammoth retailer.
Naivas has also emerged as Kenya’s supermarket king in terms of floor space, especially after it acquired the assets of six Nakumatt branches at Sh422.5 million.
It now has over 60 stores, and outbid Tuskys, Chandarana and Quickmart by over three times to scoop up some of the best performing Nakumatt branches.
Some multinational supermarkets led to by Carrefour appear to have hacked the Kenyan market.
Carrefour, which has seven branches, last year announced additional expansion plans while targeting to be Kenya’s top two retailer.
South African retailers Shoprite and Game Stores also found a home in Kenya with three branches each.
However, Botswana retailer Choppies struggled in Kenya (as well as other markets) and is looking to write off Sh1.6 billion from its local unit.
It bought a 75 per cent stake in Ukwala for Sh1 billion as a launch pad but last year shut some outlets, and has announced plans to shut down operations in Kenya.
The action prompted employees of Choppies to file a suit in court claiming Sh25 million in redundancy dues.
The Kenya Union of Commercial, Food and Allied Workers wanted the Employment and Labour Relations Court to order the payment for 543 workers declared redundant after the closure of 12 stores.
But what ails the retail sector?
Kahi, the Nakumatt administrator, admits that retail is a tough business largely due to low margins.
“The retail market is quite challenging; the margins are very low, that’s why you see them expanding so that they do volumes,” he said.
Giving an example of Nakumatt, he said that the fallen retail giant that once boasted of more than 60 stores spread out across the region “bit more than it could chew.”
Kahi, who is also the administrator for Deacons, said Nakumatt’s aggressive expansion was fuelled by debt – money owed to suppliers, which proved “catastrophic”.
“In my own estimation as an accountant, this problem started in 2013. It (Nakumatt) looked healthy on the ground but things were not working,” he said.
“They expanded, but were using supplier money creating more debt to the company which cannot be sustainable in the long run.”
Nakumatt also collapsed without any assets, which could have been sold to pay off creditors. Kahi said this scenario was true for its competitors, who mostly ride on their brand names.
“All these supermarkets don’t have any assets, only the brand name,” said the administrator.
He said that even the trolleys and shelves in Nakumatt had been leased.
“They were just trading on the brand. The stocks were not theirs, most were on consignment.”
“That’s a lesson; if at least it had own assets, it could be salvaged. (Others) like Uchumi claim to have their own assets and, faced with problems, they can sell it off to use as collateral or get additional funding. That’s why you see their debt is not that big,” he said.
Kahi said Nakumatt ignored the early signs of danger and started doing independent business reviews when it was too late.
Suppliers were the most affected by the collapse. They are owed Sh18 billion and their only reprieve is through a 46 per cent VAT refund they will get after liquidation of the supermarket.
Kimani Rugendo, chairman of the Suppliers Association of Kenya, which represents more than 1,500 members, said Nakumatt owed his juice-manufacturing firm Kevian close to Sh100 million and called for a forensic audit.
“I still don’t believe all these billions really went into a loss as it was declared,” he was quoted by Reuters as saying on Tuesday. “It is an inflated loss, a man-made loss, and we should know where they took all the money.”
“Our hope has been for a revival and to get at least our money back in the long run, at least 80 per cent,” said Rugendo.
Staff will also be greatly affected. The administrator will only pay back wages for four months capped at Sh200,000 once the liquidation is done.
However, commercial paper holders will not get a dime of the Sh4 billion owed to them.
Kahi noted that the new laws enacted last year to ensure that retailers paid suppliers within 90 days would greatly help.
“Suppliers are the biggest losers when these things (retailers) go under. Banks are lucky because they are secured and can recover at least 80-90 per cent of their debt. The suppliers’ only avenue is through tax refunds,” he said.