[photo/biznakenya.com]Kenya’s retail sector is under distress. Every big supermarket has recently undergone some operational issues or has had to face financial hardships. Naivas and Tuskys have had their family issues, while Ukwala had to make the painful decision of selling to Choppies.
Earlier on, Woolworths exited the market after struggling for years to find footing. Retail, while one of the vibrant sectors of the economy, has been a time bomb. The explosion of consumerism at the turn of the millennium, stimulated by an emerging middle-class, ignited a race among supermarkets.
Most went into expansion drives, pouring cash in setting up new branches, both local and regional, without worrying about sustainability. It was more a battle of might than a race for numbers.
Uchumi’s painful lessons from over-expansion were clearly forgotten. Nakumatt was headed to the 60th branch mark before it realized it was slowly running out of steam.
Now as it lies in the ICU, retailers are pinching themselves and reflecting on what went wrong. Nakumatt has been handcuffed by debt, running into billions of shillings, mostly owed to suppliers and its landlords.
Uchumi has been in a similar predicament for more than a decade now. This tells you even in business, prevention is better than cure. Uchumi has consumed billions, thanks to State and shareholder bailouts, yet it still totters on the brink of collapse. Nakumatt is an interesting case of grace to grass, with a short roster of the shareholder to fall back on.
East African Portland Cement nearly went under but emerged stronger. Failures and near-failures have helped stabilize the banking industry. Failure can lead to even greater success.