Nakumatt collapse underpins struggles of local retailers in Kenya

A mix of economic realities and internal mismanagement are forcing the closure of Kenya’s largest retailers. Nakumatt Holdings, which at its peak had over 60 outlets across East Africa and annual revenues of $700 million, is the latest to collapse after creditors voted in favour of liquidating the retail chain on Tuesday.

The company’s management first announced they were facing cash flow problems in October 2016, which culminated in a financial and operational meltdown. From 60 in February 2017, its branches dropped to six in September 2018, which were later sold to Naivas for $4.2 million.

Reports show that Nakumatt owed its creditors including banks, suppliers and landlords, up to $380 million. Amid the financial problems, it entered voluntary supervision in early 2018 to seek protection from its creditors under Kenya’s newly enacted corporate laws. The legislation provides a pathway for distressed firms to avoid complete collapse.

The decision to dissolve the giant retailer came after efforts to revive the supermarket chain failed. “An attempted turnaround of the business would be very costly and the company is likely to be lossmaking for the better part of the turnaround window,” explained Peter Kahi, the court-appointed administrator of the troubled retail chain, who also presented the liquidation plan in a meeting with the creditors.

The situation implies that such a turnaround would need to be financed by additional debt to sustain operations before achieving breakeven, Kahi said, adding that the company also has no assets to collateralize such additional funding.

A court will decide on the liquidator on January 17, marking the formal end of the Nakumatt brands, Business Daily reported. But Nakumatt is not the only company facing such struggles with other established retailers in similar crisis or on the brink of collapse.

Ventures Africa in September reported the exit of Botswana-based supermarket chain Choppies from Kenya after failing to gain a substantial share in the retail market coupled with other internal problems. After years of recording losses, Uchumi, one of Kenya’s oldest retailers founded in 1975 and listed on the Nairobi Stock Exchange (NSE), left Uganda and Tanzania in 2015. It reportedly owes millions of dollars to suppliers.

From being a widely reported success story of Kenyan-retail-gone-regional to imminent liquidation, the eventual shutdown of Nakumatt (which grew from a mattress shop to a retail chain with branches across Kenya, Uganda, Tanzania, and Rwanda) and the struggles of local retailers in Nairobi, are attributable to a […]

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