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Reasons why these major retailers are exiting Kenyan market

Reasons why these major retailers are exiting Kenyan market – Week in review

In Kenya’s retail market space, tough competition doubled with cash constraints has seen major retailers quitting, rendering hundreds of Kenyans jobless amid the dire economic situation castigated by the coronavirus pandemic.

Last week, South African Retailer, Shoprite, announced plans to exit the Kenya retail market barely two years since its entry, citing underperformance of its branches.

The retailer currently has two operational stores located at Westgate Mall and Garden City. This comes after the closure of its other branches such as the Karen Branch in Nairobi and the City Mall branch in Nyali. The poor performance of the retailer is attributed to a decline in revenues due to reduced footfall and constrained consumer spending amid a tough financial environment.

Stiff competition from other local retailers like Naivas and Quickmart also saw a reduced flow of revenues at the firm.

It has 2,300 stores across Africa, in its trading statement, reported that its South African division grew by 8.7 percent while sales at its supermarkets outside South Africa fell by 1.4 percent.

At the same time, Tuskys, a local retail chain reopened its Malindi and Kilifi branches indicating the retailer’s determination to retain and grow its market share amid financial constraints reported in the past few months leading to the closure of 8 of its branches, due to rent arrears among them being the Kisumu and Eldoret branch.

The move to reopen the 2 branches brings the number of the retailer’s operational branches to 57. This after the retailer received a financial boost after it signed an agreement with an undisclosed Mauritius-based private equity fund for the provision of a financing facility amounting to approximately Kshs2.0 billion last month. 

According to the Cytonne report, the retailer is expected to secure debt financing and the reopening of its branches to cushion the retailer against financial shocks amid reduced revenues and boost investor confidence especially in Kenya’s retail sector.

Deacons East Africa Limited, a fashion and clothing retailer, is set to shut down its operations in East Africa, announcing the sale of its business and assets after 60 years in the fashion and clothing industry as a result of failure to raise Ksh450.0 million aimed at helping the business remain afloat.

Deacons currently owns 4U2, FNF, Adidas, and Bossini clothing and shoe stores at Sarit Center, Two Rivers Mall, Yaya Center, Village Market and Garden City within Kenya.

The company was placed under administration in November 2018, two years after selling its shares at the Nairobi Securities Exchange (NSE) due to debts amounting to Ksh1.1 billion after it lost its biggest franchise, the South African retailer Mr. Price Limited.

Deacons’ case is almost similar to that of Nakumatt, Botswana’s Choppies, and Uchumi who exited the Kenyan retail market as a result of huge debts affecting their operations which resulted to insolvency hence the inability to meet financial obligations to landlords, suppliers and employees.

The exit of retailers, such as Shoprite has affected the retail market performance with growing vacancy rates coupled by the existing oversupply of space.

According to the Cytonn H1’2020 Market Review the occupancy rates dropped by 1.9 percent points to 74.0 percent in H1’2020, from 75.9 percent in FY’2019. The results are likely to be exacerbated by the exit of retailers such as Deacons and the growing focus on e-commerce.

However, we expect the sector’s performance to be cushioned by the reopening of outlets by retailers, such as Tuskys and the continued expansion of both local and international retailers, such as Massmart.

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