The Nakumatt Holdings’ story has been told. The rains began hitting East Africa’s retail giant when they began to close shops spread across the region, one by one.
Just recently, the retailer announced that it has wrapped up its operations at the Nakumatt Mega branch located along Uhuru Highway, opposite Nyayo Stadium.
“Dear valued customer, Nakumatt Mega branch will be closed on 15th October 2018. Thank you for shopping with Mega branch for the last 27 years. We are committed to continue serving you,” read the notice in part.
Nakumatt now remains with six operational branches spread across the country. They include: Prestige, Embakasi, Lavington, Highridge, Nakuru and Kisumu.
The past month saw the retailer run a clearance sale campaign by slashing its prices up to 50%.
According to a report by Cytonn, the industry is currently well represented by both local and international franchises.
“Key industry players include Carrefour Kenya (a franchise owned by Majid al Futtaim Group of the UAE), Tuskys, Nakumatt, Uchumi, Massmart (trading in Kenya as Game), Choppies (which acquired Ukwala Supermarkets), Naivas, and many local brands such as Mulley’s, Eastmart, Quickmart and Cleanshelf. The entry of Carrefour, Game, and Choppies has in part been aided by the recent woes facing Nakumatt and Uchumi” the report reads in part.
Factors Driving Growth of the Retail Sector in Kenya
- Kenya’s high population growth of 2.6% p.a. against the world’s 1.2% p.a. has created demand for retail goods and services.
- The rising middle-class has increased purchasing power as well as varying tastes and preferences for different goods and services and has created demand for international brands hence attracting multinational brands.
- Kenya’s urbanization rate at 4.3%, which is relatively high compared to the world’s 2.1%, has resulted in a need for retail stores and entertainment spots. The country has seen a rapid improvement of its infrastructure making it accessible for investors to venture in otherwise inaccessible areas. As a result, malls have cropped up along major Kenyan routes; for instance, malls such as Rupa Mall along Uganda Road, NextGen Mall along Mombasa Road, and Buffallo Mall along Nakuru – Nairobi highway.
- Digitalization of cash systems and popularity of mobile wallets, bar coding to help in security measures, and a high internet penetration rate of 71.6% in 2017, 21.8% points increase from 58.8% in 2016 have supported the growth of e-retailing. As a result, successful online shops such as Jumia, Kilimall, Rupu, just to mention a few are cropping up with shops like Jumia recording an increase of 25.0% in sales via mobile phones between 2016/2017.
- As per the KNBS Economic Survey 2018, in 2017, internet subscription and mobile penetration rate in Kenya stood at 71.6% and 91.9%, respectively, an increase from 58.8% and 85.9% in 2016, respectively.
Stiff competition from international brands
This comes even as international brands have flocked into the country bringing with them stiff competition in the sector. Among the international brands that have already set up in the country include: Shoprite, Carrefour, Choppies and Game Stores.
In June last year, Kenya’s ministry of Industry, Trade and Cooperatives state department for trade did a study on the country’s retail sector.
The report dubbed study on Kenya retail sector prompt payment revealed that the retail trade sector is one of the key sectors that have been singled out by Vision 2030 for transformation of the Kenyan economy to a trade competitive economy through efficient outlet of goods from farms and industries in Kenya as well as imported goods.
The sector holds promise to agricultural and industrial sector development because as the country develops, efficient consumer outreach is through formal retail outlets.
“This fact is recognized in Vision 2030 where the government targeted to raise the share of products sold through the formal retail channels, such as supermarkets, from 5% in 2007 to 30% by 2012. This dream was to be achieved through establishment of at least three new retailers with more than 10 stores each in the Kenyan economy. This dream has to a large extent been achieved, as evidenced by the number of high-end supermarkets with very elaborate branch networks.” Principal Secretary State Department for Trade Dr. Chris Kiptoo said.
Shocks in the retail sector
The first shock came in with the post-election violence, which saw the sector’s growth rate plummet to 4.8% in 2008, down from 11.3% in 2007.
The second was witnessed in 2014 when the sector’s growth rate started a sustained downward spiral culminating in a growth rate of 3.8% by 2016, a level lower than that witnessed during the post-election violence. As evidenced later in this study, the latter shock is attributed to the crises in the retail sector, which is characterized by late payment.
The sustained decline in the sector performance, the report noted, is a clear demonstration of underlying fundamentals that unless addressed, the Vision 2030 dream is most likely to remain a pipe dream. The gleam of hope on which to galvanize efforts towards addressing the deteriorating performance of the sector are recent developments that demonstrate investors’ faith and hope. This is evidenced by the over five major supermarkets that have emerged since the launch of Vision 2030, with elaborate branch networks scattered in major cities throughout the country.
Oxford Business Group’s report on Kenya’s retail sector also noted that industrial stakeholders continue to face hurdles, however, and the manufacturing sector’s contribution to GDP has not kept pace with broader macroeconomic growth.
“Low-cost imports across nearly all segments of the sector have had a negative impact on many local producers, while overlapping and unclear regulatory frameworks have created uncertainty about the role of the country’s export processing zones against a backdrop of planned new special economic zones. Although rising imports, shilling depreciation and unclear legal reforms will continue to challenge Kenyan industrial producers, the sector’s growth outlook for 2017 was positive.” The report read in part.
The retail sector in Kenya, the study adds, is benefitting from rising middle-class purchasing power, robust macroeconomic growth and a surge of investment in high-end formal retail space, with a host of foreign retailers, brands and producers entering the market.
“Although well-entrenched local players remain dominant in the supermarket segment, the entrance of Carrefour in 2016 marked an increase in competition between local and foreign outlets for new market share. With urbanisation indicating strong potential for expansion into smaller cities and formal retail space in Nairobi approaching saturation, retailers will be looking to reorganise value chains.”
Despite all that, Oxford Business Group however ranked Kenya as the second most developed sector in Africa after South Africa.
Impact of late payment
The study by the government noted that late payment was cited by the suppliers association as a key factor to closure of businesses. This makes products uncompetitive in the market due to high finance costs associated with borrowing as they await to be paid. All this is
due to cash flow constraints associated with late payments.
The list of negative impact is endless. The table below gives just a few companies that the suppliers association gave as an example of companies that have been adversely affected by late payment culture
“The challenges that the retail sector has faced in the last two years, which as documented in the study threatens the survival of the sector and Kenya’s agricultural and industrial development, have underscored the need to quickly implement the provision of the National Trade Policy on ‘Enabling Legal and Regulatory Framework’ for the Retail Sector,” the Principal Secretary State Department for Trade Dr. Chris Kiptoo said.