Retail giant Nakumatt Supermarkets lost at least Sh4.3 billion in sales and saw revenue fall by nearly a tenth last year as its branches in Kenya felt the full effect of the Westgate Mall terrorist attack.
The plunge highlights the rough seas retailers are braving in an environment characterised by insecurity concerns and sluggish economic growth amid rising fixed costs such as wages, rent and insurance.
In their latest trading update, the regional chain has reported gross sales of over $600 million (about Sh52 billion) for the fiscal year ended February 2014, compared to $650 million (Sh56.5 billion) a year earlier, a drop of 7.7 per cent.
Nakumatt executives attribute this to a slowdown in business at other malls where they are anchor tenants following the destruction of their Nairobi outlet at the Westgate Mall in the terrorist attack by Somalia’s Al-Shabaab militia in September last year.
More than Sh1.5 billion worth of stock was lost in a fire started during an assault on the attackers by security forces. Insurance payments for some of the losses were made before the end of the financial year totalling Sh1.41 billion.
Before the attack, the Westgate branch had a turnover of about Sh450 million a month, so its loss six months to the end of the financial year meant that Nakumatt had to forego at least Sh2.7 billion in sales.
Nakumatt attributes the larger drop in sales to a slow economy as well as fears among shoppers of Westgate-style assaults on other malls.
“Top-line, we have managed to cross the $600 million gross sales mark,” said Nakumatt Holdings managing director Atul Shah in an interview with the Business Daily.
“It is true to note that the loss of Westgate significantly slowed growth, alongside (the) obvious economic downside.”
In the trading update, Mr Shah said: “Retail outlets have been one of the hardest hit business fronts due to security concerns.”
Kenya’s retail sector joins tourism as one of the biggest casualties of rising insecurity, providing a clearer view of the economic impact of the Westgate attack, in which at least 67 people died.
According to the Economic Survey 2014, growth in wholesale and retail trade slowed to 7.5 per cent last year compared to nine per cent in 2012.
Uchumi Supermarkets’ sales fell four per cent to Sh7.2 billion in the six months to December 2013, blamed on reduced customer spending due to insecurity. The Nairobi Securities Exchange-listed retailer’s net profit plunged by a fifth to Sh106.9 million in the half-year period compared to Sh131.9 million as at December 2012.
“Insecurity in Uganda and Kenya negatively impacted retail outlets following terrorist threats that saw patronage of shopping malls inevitably decrease,” said Eva Masinde, an analyst at NIC Securities.
Naivas, ranked the third-largest retailer behind Nakumatt and Tuskys, admitted that the chain’s financial performance was hit last year due to insecurity, shrinking disposable household income linked to inflation and tension related to the March 2013 General Election.
“The retail sector was largely affected last year due to insecurity and the tension of the March elections. This year is more of a recovery year,” said Willy Kimani, business development manager at Naivas.
He said security concerns have put a damper on Kenya’s growing ‘malling’ culture where consumers jam shopping malls to splurge on shopping, meals, clothing and electronics while socialising.
Naivas, a privately-owned family enterprise, does not publish its financial results. The retailer, which opened its 30th outlet in Garissa a fortnight ago, is estimated to have raked in about Sh16 billion in sales last year.
The retail chains, however, have picked their pieces and are now opening new branches targeting zones that were hitherto unserved.
Nakumatt last week opened the first of the three branches it acquired from South African retailer Shoprite for Sh3 billion financed through a loan from KCB Bank. The new outlet at Mlimani City Mall in Dar es Salaam brings to 48 the total number of Nakumatt stores across Kenya, Uganda, Tanzania and Rwanda.
“Growth will, however, be sustained through ongoing expansion projects and hopefully faster economic recovery,” Mr Shah said, adding that the supermarket chain plans to set up three additional stores in Kenya by the end of the year.
The new outlets will be based at Shujaa Mall in Nairobi’s Donholm estate, SkyView Mall in Highridge and a complex in Bamburi, Mombasa.
Nakumatt said it will also be expanding its private brands portfolio such as Nakumatt Select, an exclusive line of home furnishing products, DeliFrance, a franchised chain of café bakeries, as well as Clarks and Skechers lifestyle footwear outlets.
Nakumatt has also partnered with Bank of Africa to introduce a hire purchase facility dubbed Mkopo Poa where consumers buy goods on credit and pay in 12 months at an interest rate of 1.5 per cent per month.