As the seemingly interminable coronavirus gloom continues to wreak havoc on the economy, retailers more than anybody else know where it pinches most.
This is on the back of reduced footfall to their stores as would-be customers keep away for fear of contracting the deadly virus and household budgets shrink.
And long before the virus landed on Kenyan shores back in March, the sector was already hurting, claiming erstwhile giants such as Uchumi and Nakumatt, while the Tuskys boat had started rocking.
To the casual observer, the last decade has rightfully earned Kenya the tag of a “retail graveyard” owing to the fall of not only Nakumatt, Uchumi and Ukwala, but also clothes retailers such as Deacons.
But Retail Trade Association of Kenya (Retrak) Chief Executive Wambui Mbarire, who has been in the thick of things for close to a decade now, reckons the narrative that the local retail sector is on its death is overhyped.
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She said the narrative is based on only a few cases and overlooking the growth of the entire sector in the last five years that has averaged 30 per cent.
“I would like to dissuade people from comparing what the sector looked like four years ago to right now; there has been significant growth,” she asserts.
Some of the reasons for the woes afflicting the sector include fraud, aggressive debt-fuelled expansion, inability to keep up with changes in consumer spending patterns, online competition and challenges in the implementation of new sector regulations.
Providing over nine million jobs as of 2019, retail trade (combined with wholesale, hotels and restaurants) is the biggest employer in the informal sector, according to government data.
The sector, which is valued at Sh740 billion as of the end of last year, is one of the main drivers of the Kenyan economy.
But five months into the Covid-19 crisis, shoppers’ habits have significantly changed as disposable incomes drop, piling up woes for retailers.
The virus has exposed the soft underbelly of retailers, a case in point being the current struggles of the country’s second-largest supermarket chain Tuskys.
The retailer is staggering under a Sh6.2 billion suppliers’ debt and is in urgent need of capital injection.
Mbarire is, however, adamant that this is not a reflection of the health of the entire sector.
She said despite the struggles of the hitherto tier-one retailers, the lower ranks of the market have grown commendably.
This includes retailers such as Quickmatt, which merged with Tumaini last year.
The retailer was acquired by Adenia Partners, a Mauritius Private Equity Fund, which propelled it to the country’s third-largest supermarket chain with over 25 stores.
Others such as Chandarana, CleanShelf, Eastmatt, Peter Mulei and Magunas, which largely operate in the counties and city estates have also grown their branch networks, moving out of their comfort zones.
“The perception that the sector is dying focuses on the failure of a few retailers such as Nakumatt and Uchumi. Now that Tuskys has problems, the discussion has resurfaced,” said Mbarire.
On Tuskys, she said critics seem to disregard the fact that suppliers and bankers have agreed to work with the troubled retailer in a rescue plan, an indication that the situation is changing.
The Kenyan retail environment has not been kind to well-heeled foreigners either.
Botswana’s Choppies, which bought failed Ukwala as it entered the Kenyan market, left the country in a huff after a two-year loss streak that left it saddled in debt.
It has been forced to write off Sh1.6 billion in impairment losses and announce plans to sell 15 of its stores.
Africa’s biggest supermarket chain Shoprite Holdings has also been unable to crack the Kenyan market.
Last month, it laid off 115 workers as it shut its Nyali Branch just three months after closing its Waterfront branch in Karen, putting 104 individuals out of work.
South African fashion retailer TFG, which has four outlets, is set to exit Kenya complaining of the high cost of doing business after landlords insisted on dollar-based rents.
“It’s totally, utterly unviable to be in Kenya. We’ve given notice and we’re going to exit Kenya,” TFG Group Chief Executive Anthony Thunström told Reuters.
Mbarire observed that the exits are tied to woes in their home countries and gave examples of growing foreign retailers such as Carrefour and South Africa’s Massmart.
“It’s important to capture that their problems are related to their motherlands, which have impacted their expansion into Kenya and other African countries,” she said.
Recently, South Africa’s Massmart, which also runs Game Supermarkets, opened the Sh500 million Builders Warehouse at the Waterfront Mall in Karen.
Outside the supermarkets, Mbarire said, international and local brands such as fashion store LC Waikiki, Accessorize, Vivo, food and coffee chains Big Square and Java respectively are also expanding.
She noted that the presence of foreign retailers has helped consumers as they’ve actively pushed down prices.
“They argue that the lower the prices to consumers, the more the money the consumer has to shop. This translates into more volume sales,” said Mbarire.
She has also dismissed the notion that retailers are to blame for the death of some businesses in the country, insisting that even when retailers close shop, suppliers who are owed money continue thriving.
“We don’t see the big suppliers and manufacturers closing en masse because Nakumatt or Uchumi didn’t pay them. Even with the present challenges in the market, you didn’t see them closing. The whole supply chain needs to be relooked at,” she said. Mbarire noted that the issue of low margins is the key reason that retailers seek to expand rapidly despite the cost implications.
Other disconnects in the supply chain, she said, include high prices, stocking, expansion rationale, inefficiencies and corporate governance.
Mbarire said high prices minimise volumes, which consequently affect cash flow for retailers.
“Retail is a volume business hence the aggressive expansion that has had devastating impacts on some retailers,” she said.
The sector, added Mbarire, has also suffered inefficiencies such as inventory management.
“For example, if I open a residential branch, do I put high-end furniture or electronics that are not moving within that area? Some stocks are not impulse buying items. The square footage should be a reflection of the location, and some branches should only be stocking fast-moving consumer goods. This can be achieved by studying data through sales,” she said.
System controls meant to tighten end-to-end control of the stock from pilferage and keep track from receiving of the stock to till have also been the bane of many retailers.
Mbarire noted that corporate governance was another big challenge. According to her, it arises from how Kenyan retail “grew almost from nothing to something.”
In all the big supermarkets, none of the operators has a business degree let alone retail training. In a candid interview with Financial Standard, Naivas Managing Director David Mukuha said this was one of the chief reasons the family ceded a 30 per cent stake to the equity fund investors.
“Our retail grew faster than we put in the systems, and it applies to inventory. This can be seen in aggressive expansion or inability to separate retailers’ money and suppliers’ money,” said Mbarire of the trend.
She said a retail curriculum should be introduced in Kenya’s schooling system.
“We don’t have a retail curriculum in this country, which has resulted in every retailer, especially in the supermarket sector setting up their own training,” said Mbarire.
Recently, Naivas opened its 65th branch to become Kenya’s largest supermarket chain.
She said supermarkets have learnt the path towards a healthy expansion.