For several months now, it has become very apparent that Kenya’s major retailers are undergoing severe financial distress. The season of gloom comes after nearly a decade of neck-break expansion that was mainly fuelled by discounts and extension of periods they paid suppliers — a run that has now culminated to over Sh40 billion in debts to creditors.
In recent months, however, it has become clear that the challenges are deep and have rendered some of the supermarkets incapable of meeting their financial obligations. This week, we have reported two cases of retailers failing to pay workers their May salaries. The largest, Nakumatt, has not paid its 1,555 employees and has even sent some of them on compulsory leave, citing low business.
Uchumi, has similarly failed to pay salaries to its 1,300 workers, a recurrence of the April delay, signalling the scope of the problem. It is important to note the implication of the financial disarray in the sector. The most obvious one is the impact on suppliers and the longer supply chain running all the way to the farm gates and small factory floors.
This chain, which includes transporters, storage and distribution has thousands of employees and a couple of banks backing it. Then there are statutory deductions and payments to multiple utility and security suppliers. To cut the narrative short, the failure of the retail sector has the potential of instigating a contagion with devastating effects on the national economy.
In 2006, Uchumi Supermarkets collapsed and was only ‘revived’ through public funds. The other retailers owing billions including Tuskys, Naivas and Chandarana are private entities that do not qualify for State support. One should imagine that the other retailers watched the Uchumi debacle and have come up with better expansion models.
But no, they had suppliers keeping them up like drug addicts who needed more shots. And given their oligopolistic nature, it was hard for suppliers to say no.
This is the reason we take the position that this sector urgently needs better regulation. It’s time the government came up with laws governing the retailers so that they pay on time and if they can’t pay, shut down before they can imperil the economy. This should happen quickly to weed out or restructure those that cannot survive without unreasonable credit terms from long-suffering suppliers.