Deal: Nakumatt to cede 51 per cent of its stake to Tuskys

Nakumatt Junction, Nairobi

Landlords want their rent. Suppliers want their arrears and customers deserve their favourite goods. But Nakumatt has neither. It can only shut branches.

Given money, Nakumatt Supermarket would want to satisfy the customer first but suppliers and space owners won’t let it.

Once a promising retailer in the region, its brand has been bruised and the might depicted through its “You need it, we’ve got it!” slogan and the elephant sculpture overshadowed by the sorry state of its near-empty shelves.

A walk into the once prestigious Nakumatt Lifestyle, visible from both Monrovia Street and Moktar Daddah Street, the space is quickly turning into a ghost mall.

As the anchor tenant, when it started raining misery, it also poured for other tenants. Customer traffic in the once busy building is dropping daily and owners of the budding also want it out.

On the way out, is a lady who can no longer sustain her business of selling popcorns, which was strategic for customers who had extra coins after main shopping. Directly opposite, her eyes are gazing at closed doors of Charterhouse Bank, which last served customers 12 years ago.

In June 2015, when fire broke out in a restaurant on the second floor of Hazina Trade Centre- where Nakumatt Lifestyle is housed - all its employees on duty were evacuated to safety. The situation was contained and business resumed.

Fast forward to 2017 and the under fire Nakumatt cannot guarantee its employees job security - at least not when the shelves are empty.

“Once upon a time we called all supermarkets ‘Nakumatt’ as the way we call diapers ‘Pampers’,” wrote Hesham Hassan, a Twitter user on October 10 to depict the popularity of the retailer’s brand.

But building such a brand was not easy. As a little boy, Atul Shah, the current managing director and CEO once did odd jobs such as stacking sacks, making deliveries to customers and manning the till at his father’s shop in Nakuru.

Together with his brother, they worked hard to pay off their father’s Sh1.2 million debt after he sunk into the shame of bankruptcy. From there, they acquired Nakuru Mattresses from their uncle and merged it with Furmatts, a clothing store they had started, to forge Nakumatt Supermarkets. A beautiful retail story had begun.

But many years later, the once success story in the eyes of the Kenyan economy is in crisis. Creditors are knocking on Atul’s door for a sum of between Sh30 billion and Sh40 billion in secured and unsecured debt. Sadly, he cannot single–handedly rescue his business from the debt like he pulled out his father out of the trap of bankruptcy.

Each day, he watches in anguish and despair as the brand he took years building breaks away piece by piece. In July, he offered an apology to all stakeholders he felt he had let down. It was the same month he told Weekend Business that he no longer enjoys sleep, meals or immediate family time.

“I can’t say it enough, but I am sorry and sincerely committed to facilitating the turnaround of Nakumatt, whatever it takes,” he told Weekend Business in a previous interview.

For a man who has soldiered alone growing the brand and keeping it close to his family like many Indian businessmen do, he now finds it impossible to remain a float without losing part of his stake.

Since making an admission in October last year that the retailer was facing financial crisis occasioned by depressed economy, higher operating costs and other extraneous factors, it has been a 12-month of agony and sorrow.

So far, the retailer has shut down 16 branches. October has particularly been a terrible month. The retailer, which said that it wants to trim its branch size to save Sh1.5 billion annually has closed six branches- Junction Mall, Mlimani City, Westage Mall, Bungoma, Busia and Arusha branch.

And the shutting has not been smooth. With every branch shut, its brand attractiveness has faded. Landlords have intensified their demand for rent arrears. The Government has ruled out any bail out and in some instance. The retailer has been forced to use its clearly weak financial muscles to try and engage her landlords in legal battles.

Meanwhile, its competitors have seen an opportunity and not delayed in capitalising on the elephant’s woes. As Nakumatt struggled to carry away the giant sculpture of elephant from the prestigious Thika Road Mall (TRM), French retailer, Carrefour, was watching closely. From next month, TRM will be Carrefour’s new home. At NextGen Mall, new entrant, Souk Bazaar, an Arabian retailer, has already set base.

For a retailer that had 63 branches, seeing about a third of it go is an occurrence that Atul, who has been on expansion drive, may not have envisioned. And an insider at Nakumatt, who did not feel comfortable being named without compromising his already jeopardized work, says more closures will follow.

In December 2015, Nakumatt sunk Sh200 million in Busia and Bungoma branches to push its total branch count to 57. In March 2016, it then opened another branch in Kakamega to complete the remodeling of the three supermarkets acquired from Yako Ltd at a cost of Sh260 million.

With that, Nakumatt succeeded to have 12 stores in nine west Kenya counties-Busia, Bungoma, Kitale, Kakamega, Kericho, Kitale, Kisumu, Kisii, Uasin Gishu and Nakuru.

But in one month, it has made unceremonious farewell to Busia and Bungoma counties, leaving customers in the hands of small retail stores and opening room for possible pouncing from other rising giant stores.

Having risen from the ashes of the 2013 deadly terrorist attack at Westgate Mall to reopen in 2015, Nakumatt has now been forced to exit one of the oldest prestigious shopping space in East Africa. This brought to an end an eight-year old success story that bordered might and prestige.

The exit from Westgate Mall, on grounds of rent arrears has brought to question its ability to sustain itself in high end stores. In the same month, it has lost its battle to retain space at Junction Mall, which is owned by the wealthy Ndegwa family.

The list of other malls it has lost ability to operate and walked out include NextGen Mall, TRM, Village Mall (Bugolobi, Uganda), Acacia Mall (Uganda),  Mlimani City Mall (Tanzania) and Victoria Mall in Entebbe Uganda.

The landlord of High Park Mall in Highridge, Nairobi where the retailer operates had also attempted to push distress button on Nakumatt before the court intervened.

Its troubles in Uganda and Tanzania is complicating the business further. In September, Uganda Revenue Authority commenced the auction of Nakumatt goods at two of Kampala outlets- Bugolobi and Kamwokya- to recover about $71,000 (Sh7.4 million) dues.

At the same time, landlords have been demanding about Sh515 million from the troubled retailer, making it to choose to walk out rather than sink deeper into debts.

Prominent people, including Uganda State minister for defence in charge of veteran affairs, Bright Rwamirama, and his wife Florence Rwamirama have taken Nakumatt to court. The former army man and his wife, alongside Mpororo Group Ltd were seeking about Sh59 million claiming that the retailer has been defaulting on tenancy agreement since 2013.

In Tanzania, where Atul spent $3 million or Sh311 million, using current conversation rates, to open three branches in Dar es Salaam, it has had to pack and leave Mlimani City Mall. Atul had debuted Moshi, a bustling town at the foot of Mt Kilimanjaro back in 2011 and later in Arusha to open other branches. Instead of developing further, last year saw him sell 51 per cent stake in Nakumatt Tanzania.

It was even thinking about entering Burundi and Djibouti. It only cancelled South Sudan plan after the market turned problematic due to insecurity and weaker pound. But that is not top on their worries now.

The business has entered the problematic phase of divesting. Unfortunately, its expansion drive has attracted liabilities more than assets. Creditors are losing patience and want the company liquidated to quench their thirst for their money.

This week, consumer goods manufacturer, Chandaria Industries, joined the list of creditors who are casting doubt on ability of the retailer to return into profitability and pay out debts. Instead, they want their money now.

Mahesh Chandaria’s firm is joining African Cotton Industries through an insolvency petition in seeking Sh353 million.  And 88 other creditors are monitoring the situation closely to recover about Sh4 billion. Gold Crown Beverages and Primrose Management Limited also favour liquidation.

Chandaria’s debt is now the highest among the creditors who have come out, followed by Samsutech Corporation (Sh233 million) and Bobmill Industries at Sh195 million.

Mr Atul has a lot of storms to weather - impatient suppliers, disgruntled landlords, demoralised workers, unhappy customers and scavenging competitors in the face of Nakumatt’s scathed brand. And he wants to keep his name too.

Atul started his business by acquiring Nakuru Mattresses and merging it with Furmatts. Since then, the language of acquisition and expansion has been what he understands best. In Uganda, Nakumatt acquired Payless Supermarket. In Western Kenya, it acquired Yako Supermarket. When it moved to Tanzania, it acquired Shoprite stores. But the tide has changed. It now wants to cede part of itself to a rival – Tuskys.

All this now lies with his rival, Tuskys Supermarket, and the competition watchdog - Competition Authority of Kenya (CAK). Anything short of white smoke from the negotiation room could deal his lustrous retail business career a huge blow.

In May last year, intimidating floods drenched his stock at Nakumatt Ukay Centre shopping mall in Westlands, disrupting cash flows from the high end shoppers from Westlands and Parklands. But now, his entire business is dripping wet from debts and the deal that could make all the difference is taking time.

Proved disastrous

It is now emerging that Nakumatt will have to cede 51 per cent of its stake to Tuskys, clearly putting its competitor in the driving seat to decide which road she may want her ailing elder brother to travel on.

And Atul will have to vacate his CEO seat and also be ready to content with a new chief finance officer. Key decisions including procurement and inventory management will also rest in the hands of Tuskys.

But the buyout deal, still in the hands of CAK, means more waiting for Nakumatt. The process of approving or declining a deal is usually thorough and takes up to 60 days. The two retailers made the application in mid-October meaning that CAK could make a determination as late as mid-December.

October has proved disastrous. Walking through November with depleted shelves, pressing social media comments, unforgiving creditors and empty pockets may prove the longest walk for the elephant.