BUSINESS FOCUS: Mourning Nakumatt’s slow demise…

The Popular elephant logo for Nakumatt

It is sad that we live to witness a giant retailer, an icon in Kenya u E. Africa clutch at straws of survival, adorable demise seems eminent. Nakumatt has for over decades been a symbol of status and affluence in our growing economy, stocking some really high end stuff. It’s top tier clients were never disappointed in their shopping and experience, getting exclusive and u compromised customer care and value for their money. Nakumatt was the elephant in the park, with a guaranteed premium retail service. From the strategic location of the various retail chain outlets, ample parking, spacious shopping aisles to covetousness credit card, they had it all.

It was a sore sight to see the Nakumatt staff demonstrating on the streets last year (2017) due to unpaid and delayed salaries. The issue was alleged to be due to problems with cash flows. An ordinary mwananchi would not understand because we all knew Nakumatt was a profitable venture banking millions of shillings on a daily basis, across its chain stores. Not only that, Nakumatt shutting of its retail outlets which were synonymous with its brand name is a big pain in the a**. Recently, they were forcibly evicted from Thika Road Mall. The Nakumatt Junction store was shut, and Westgate, Moi Avenue, Lifestyle were all not spared. Issues of accumulated rent arrears owed to landlords, as the case of TRM where it ran into over Ksh. 51 million made the landlords take action to recover their money, including auctioning Nakumatt Holdings property and goods.

The once Nakumatt Thika Road at TRM

What has been eating up the Elephant?

There had been a problem brewing at Nakumatt without proper remedies to get rid of them. Seemingly, the profitable and well performing picture painted on media and our minds (perception) was never the case. The elephant has been paining from inside. Nakumatt, with 63 retail outlets running across Kenya, Uganda, Rwanda and Tanzania has shown incredible growth, with a ready target market in the empowered middle class. Massive tax liabilities, stock shrinkage and poor strategic thinking are some reasons behind the giants silent demise. Sad, for such a great brand in this present day.

Increasing Debt burden

Nakumatt Holdings has been incurring increased debts over the time as it continued with operations. The debts, accruing to over Ksh. 15 billion from defaulted payments to suppliers, loans from creditors and rent arrears, like the case of TRM where the landlords were owed excesses of Ksh.51 million.

Tax controversies

Like any other large organisations, Nakumatt Holdings was not a stranger to tax issues. It was alleged that some interested parties were using their influence through the KRA to get their way with the retail giant. The Ksh. 5 billion tax bill slap by KRA on it almost brought its operations down. It had to trade on cash for a long time as its credibility was questionable, with all banks given notice on the same. These allegations of tax evasion and money laundering were also linked to Charter-house Bank, which long since collapsed. A reliable source purported that Nakumatt’s total burden increased rapidly between 2016-2017, from Ksh. 4.7 million to a high of Ksh. 18 billion; due to their short term repayment period extended from 30 to 120 days.

Business Losses

Nakumatt Holdings has over years made losses amounting to billions. We all recall the 2008 incident where the Thika Road branch was mowed down with stocks worth millions of shillings destroyed inside it, with the governments directive of constructive the now Thika Super highway. As the property was destroyed, staff, suppliers and creditors had to be compensated. It may be said Nakumatt never recovered fully from that setback. It is reported the figure is around Ksh. 35 billion in terms of stocks, cash, lost business opportunities.Also, the fire that gutted down a Nakumatt outlet in the CBD due to an electric fault caused substantial damage to its stocks and property. 29 people perished during the incident and all this had to be compensated for, with Nakumatt taking up of the bill.

Poor strategic decisions

The rapid expansion of the retail chain across the country and region stretched its core resources to manage its bloated staff and control operations. There were many strategic elements that were overlooked even as its ambitions put little regard to other financial and operational realities that govern proper management of retail chains. A good case could be pointed out of the Nakumatt Lifestyle branch. The 20 year lease for the whole building to Nakumatt by the owners (NSSF), was a bad call, as it led to new conflicts and unseen problems later on, especially after NSSF started constructed of more floors to its structure. Construction affected the traffic and even the housed tenants, who were paying rent and bring in cash flows. Nakumatt was left to foot almost the entire building, and with poor proceeds from its operations, could not sustain itself. In a nutshell, the strategic decision to take long term leases on high end properties where their retail outlets operated was a risk not well calculated and thought out.

Poor Corporate Governance

Shah Nakumatt.jpg
Nakumatt’s CEO: Mr. Atul Shah

A week management structure has played a critical role to Nakumatt’s downfall. Being a family owned business, poor decision making and compromise on high level decision making has affected its performance. All major decisions concerning Nakumatt’s are done by Atul Shah and his two sons,  Neel and Akur. Proper corporate governance is required in managing a company of Nakumatt’s stature, and when this is not adhered to, it affects the company;s performance as evidenced with Nakumatt.

Colluding between employees and wayward suppliers 

Employees and corrupt suppliers took advantage of the gaps in the structure of Nakumatt to exploit it for own gains. Goods ordered were never delivered whereas all paper work showed otherwise, and payments made the same. Dead stocks was an issue too, with goods already paid for not moving from the shelves, which in turn affected the cash flows. Credit card scams were also prevalent at the Nakumatt retail outlets, with scrupulous employee manipulating the payment system and cashing in on purchases made using credit cards by corrupting the system in place. Nakumatt Holdings had to pay for the shorts when reconciling with the banks whom it partnered with for credit purchases, in millions.

A glimpse of hope?

Mr. Kahi, Nakumatt Administrator (Capital News)

The owners of the once giant retailer have not given up, and are working on finding solutions and resuscitate the sinking business. through their administrator, Mr.Peter Kahi, he mentioned that there were plans to maintain the retail business through a supplier partnership model. Suppliers play a vital role in the operations of any retail business enterprise, and compromising on agreed terms of payment and terms of business would be detrimental to the business in the long run. As provided on Capital News, they have both a short term and long term strategy to manage the current problems they face, especially with the suppliers.

In the short term, they will apply a consignment sales stock basis whereby they sell products and pay within 2 weeks. Those products which don’t sell could be picked up. Suppliers play a critical role as key stakeholders in enabling the retail-chain recapture its market, generate revenue from the ready traffic of consumers in the various strategic locations they are located. With steady revenues, the administrator could be able to sort all the creditors in a long term plan. In these whole scheme of themes, Tuskys Mattresses Limited would provide critical operational input, as new managers for Nakumatt. They would be mandated with using their resources and means to provide technical services to turn around the fortunes of Nakumatt, in a bid to win back its fortunes.

A merger has been in the process of making from late 2017, with Tuskys expected to acquire some of Nakumatt Holdings as they plan to merge their operations. The process, through the courts is nearing completion with Tuskys mandated to:

  • as stated above provide management services  such as procurement and inventory.
  • provide funds to run daily operations, pay rent to landlords and employees renumerations
  • constructively engage with the creditors of Nakumatt for continuous stocking by suppliers and payment to them done through trust accounts through a consignment sales stock basis.

Nakumatt Holding has an operational obligation of ensuring that there are no losses in its chains, and this would mean shutting off some of the non-performing branches. This could explain why some of the branches are shut down, whereas other continue to be operational.




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