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Deacons blames tough business environment for Sh180 mn loss

Deacons chief executive officer Muchiri Wahome. FILE PHOTO | NMG
Deacons chief executive officer Muchiri Wahome. FILE PHOTO | NMG 

Deacons East Africa's #ticker:DCON half-year loss for the period to June 30, 2017 deepened nearly two-and-a-half fold, the lifestyle clothing firm reported on Wednesday, blaming a tough operating environment.

Net loss for the half year period increased by 242.81 per cent to Sh180.42 million from Sh52.63 million in the same period last year on slower growth in sales amid rising expenses.

Chief executive Muchiri Wahome said drought-driven inflation and the wracking challenge of credit rationing due to the interest rate cap reduced the spending power of its clients.

“We came into this year with severe drought which then became an extended drought and that led to serious food inflation. Inflation has a negative impact of reducing consumer spending because customers have to reorient their spending to basics and necessities, and our customers are spending less than they would have previously,” Mr Wahome told investors at a briefing on Wednesday.

“We also have seen a lot of SMEs are struggling to survive in view of reduced credit into the market, we have seen personal lending reducing and all that has a direct impact on consumer spending. Internally, our value proposition has been under challenge and so we have had to reduce prices in order to flash out stock and create liquidity and that suppressed the margins of the business,” he added.

Sales revenue rose by 4.85 per cent to Sh1.08 billion despite the NSE-listed company opening an additional eight stores.

Underperformance of anchor tenants

The fashion apparel retailer also hinted that its sales were hit by non-performance at malls where Nakumatt is the anchor tenant, leading to reduced customer traffic where 98 per cent of Deacons outlets are located.

Operating expenses increased by 12.34 per cent to Sh523.97 million, reflecting the increased cost of operating additional stores in new malls.

Mr Wahome said UK fashion brand F&F at the Hub and Sarit Centre registered “encouraging” results following the franchise store opening last December, adding that the brand line has potential to grow into a “chain of stores”.

“This can also be said for Adidas and LifeFitness brands which have also posted positive results, signalling that the ‘wellness and leisure’ market segment will continue to present growth opportunity,” he said.

Online shopping

The company plans to introduce an online shopping platform early next year to expand its market reach in a bid to boost sales.

“By launching a proprietary e-commerce platform, which is slated for Q1 (first quarter) of 2018, we will be able to drive down our operating expenditure by 20 per cent and offer more diverse product portfolio to our customers,” Mr Wahome said.

Deacons operates several branded stores in Kenya including Mr Price, Truworths, Angelo, 4u2, Reebok and Babyshop.

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