Retail Sector Review: Lessons from Uchumi, Nakumatt and Shoprite Should we wait for episode 3 of the ailing retail giants series?

What is exactly happening to Kenya supermarket chains? A decade ago, Nakumatt, Uchumi and Tuskys were big domestic brands dominating the retail sector. Currently, Nakumatt and Uchumi have been closed down while Tuskys is treading on a dangerous ground. Foreign brands such as Choppies and Shoprite are set to exit the Kenyan market citing unprofitability. The lights are still shining bright on the three upcoming retail giants Carrefour, Naivas, and Quickmart supermarkets. Naivas signed a KES 6 billion deal with Amethis, a French private equity firm that saved it from the ailing retail crowd. Quick Mart and Tumaini currently have a combined network of 25 stores, after the merger. Carrefour opened its eighth store in Nairobi increasing its footprint in the local retail space after taking Kes. 3 billion loan from South Africa’s Standard Bank Group. Mid-Tier retailers are also in the midst of expansion in Kenya, including Mulleys & Sons, GreenMart, Maathai Supermarket, EastMatt and CleanShelf. Other small retailers are mushrooming all over, majorly in the residential areas. Despite Kenya being ranked as having the second most developed retail sector, the market is quite challenging as the margins are very low ranging between 1.5% and 2% that is why most brands including the three fallen giants opted for expansion to increase volumes. However, behind the curtains the three retailers were grappling with debt, mismanagement and fraud. Business people have found it easier to build fascinating brands, but difficult to put in place mechanisms that would ensure their prosperity in the long run. These brands have been hanging on a thread by depending majorly on supplier proceeds to fund their own projects. Additionally, most supermarkets do not own assets safe for shelves and trolleys which are being leased and stocks which are bought on credit. The consequence is a situation where these brands continue to stand on fragile grounds and as such it is difficult to salvage them by selling nonexistent assets.

Drawing lessons from three fallen giants what’s next for the Kenyan retailers? Will they embrace the eastern landscape (E- Commerce) or western approach (New shop experiences)? It is important for the retailers consider the following when making firm wide decisions.

  • Sources of Funds – For the longest time in history retailers have been depending on loans or suppliers money to finance their expansion projects which in not sustainable. Going forward they may need to consider involving private equity firms because they not only provide funds but also managerial expertise and sectoral knowledge.
  • Expansion strategy – Expanding your business is commendable but blind expansion is a poisonous pill. The management should be intentional about their growth focusing more on how to retain and win more customers and not just creating photo copies of their original store.
  • Technological innovations – Technology continues to impact, influence and shape how and where consumers shop. E-commerce has been the fastest growing retail channel and is expected to become the largest retail channel in the country by 2030. Expanding to the mobile realm and adopting disruptive business models using digital enablers gives you the ability to keep up since supermarkets of the future will not have as many aisles and shelves.
  • Partnering with other firms – Not every business can meet the expense of acquiring other companies. If it makes sense for your company, pool resources with a third party who can help make your expansion goals a reality. You can do this by partnering with a company in the market you want to target. For example, if you want to expand your menswear fashion line, you can partner or acquire an existing male fashion business instead of developing new products from scratch.
  • Customer preference – Consumers don’t like friction. Therefore retailers need to align their strategies to changing consumer preferences, behaviour and habits.
  • Good corporate governance – Retailers today encounter many challenges: keeping costs low, ensuring high supply chain efficiencies, protecting their brand and reputation, responding rapidly to changing consumer tastes and penetrating new markets. In order to bring value, the management should adhere to the tenets of transparency and accountability in its investments.

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