Uchumi Supermarkets kicks sub-tenant retailers out of its stores
A branch of Uchumi in Nairobi. The firm says shift of strategy is behind eviction of the small traders. PHOTO | FILE
What you need to know:
Uchumi has 127 specialty shops in its outlets that employ 2,000 people and most of the sub-tenants are also shareholders in the retail chain.
The sub-retailers yesterday held talks with Uchumi to have the eviction notice reversed, arguing that the “short notice” exposed them to huge losses.
Loss-making retailer Uchumi Supermarkets has asked operators of specialty shops within its outlets to vacate by mid next month, putting at risk more than 100 medium-sized businesses which rely on the traffic associated with its brand to make sales.
In letters dispatched to all sub-tenants last week, Uchumi said the notice to vacate had been prompted by a change in its business strategy whose details it did not disclose.
“We are terminating your contract due to a change in business strategy,” the retail chain’s acting chief executive Owino Ayodo said in a letter to the retailers dated August 4.
“Kindly note that your last day of operation will be on September 15, 2015.”
The retailer said the letter would serve as the 30-day notice specified in the contract with the businesses whose models are built on the store-within-a-store concept.
People familiar with the matter told the Business Daily that Uchumi plans to bring in international brands to replace the current tenants who sell a wide variety of merchandise including clothes, electronics and food.
The move comes barely a month after the retailer announced it had kicked out its former chief executive Jonathan Ciano and called forensic auditors to review its operations.
Besides cutting their revenues, the decision is expected to leave the operators of specialty shops with millions of shillings tied in inventory whose movement they won’t be able to determine.
Those relying on bank financing face a further squeeze as loan repayments fall due at a time when their businesses will have been discontinued.
Uchumi has 127 specialty shops in its outlets that employ 2,000 people and most of the sub-tenants are also shareholders in the retail chain.
The specialty shop owners pay Uchumi a commission in the form of a percentage of sales, with the businesses benefiting from the traffic associated with leading retail chains.
The sub-retailers yesterday held talks with Uchumi to have the eviction notice reversed, arguing that the “short notice” exposed them to huge losses.
“We have been operating on two-year contracts that have been renewed regularly. So we have been planning around this,” said one of the business owners, who did not want to be named fearing reprisals from the Nairobi Securities Exchange-listed firm.
“A one-month notice is unfair. We would rather have the contracts expire without renewals at the end.”
The operators said they wanted to understand Uchumi’s new business strategy and see whether they could fit into it. Some of the operators promised to defend their contracts with Uchumi vigorously, including going to court for orders stopping their eviction.
New strategy
Mr Ayodo did not elaborate on Uchumi’s new strategy but insisted that the retail chain had taken a different route for use of floor space to make it more productive, adding that the specialty partners were not on lease and that the 30-day notice was in line with the arrangements.
Uchumi’s letter indicates that the company is overhauling its model and the decision to part ways with the specialty shops was not due to their shortcomings.
“The repositioning of Uchumi has affected many aspects of the organisation and in some cases change of policy,” the letter says.
“Although we have been pleased with the services and product quality your company provides, this change makes it necessary for us to rebrand our supermarket chain to achieve maximum customer satisfaction and preference.”
The letter’s wording appears to confirm one of the specialty shop owners’ view that Uchumi is intent on upgrading its shops and product offerings to appeal to the high end of the retail market currently dominated by Nakumatt Holdings.
Nakumatt has in the recent past signed franchise deals with some leading international brands, including Revlon (cosmetics) and Clarks (footwear), deepening its appeal among the rich and middle class shoppers.
Uchumi’s stock-outs last year have also not helped matters, having eroded the goodwill of customers looking for basic items like groceries and soft drinks.
The retail chain was hit by the acute shortages a few months after it raised Sh896 million from shareholders in a rights issue and more than Sh1 billion in loans from local banks.
Uchumi has failed to return to its former glory since it got relisted on the NSE in June 2011 after a five-year suspension, following gross mismanagement that saw it close shop in June 2006.
Uchumi has been struggling to pay suppliers since late last year and the board said it was selling non-core assets like land to raise Sh2 billion it needs to pay suppliers.
To find its position in the market the board said it would hire a management consultant to write a new blueprint for the 38-year-old firm, which is yet to hire a substantive CEO to replace Mr Ciano who left in June.
Mr Ciano was forced out over what the board termed as gross misconduct and gross negligence that saw the retailer sink into losses driven by a credit-fuelled expansion spree.
Uchumi made a pre-tax loss of Sh262.3 million in the half year ended December compared to a pre-tax profit of Sh106.9 million a year earlier after sales fell to Sh6.8 billion from Sh7.2 billion during the same period.
The retail chain, which has been accused of cooking books, hiding its net loss/profit figures by leaving them out of its financial statements.
