Why Kenya’s big retail chains are struggling

Kenya’s retail sector is on the cusp of a renewal, ripe for consolidation and a host of several innovative streaks as the target customers are evolving rapidly.

This is despite the fact that the retailers have not been doing well, operating in an economic slump amid numerous challenges that have rendered their business what some would refer to as an entrepreneurship minefield.

One of the key reasons for the pressure on the retail sector is the fact that the margins are usually razor-thin, ranging from around 1.5 percent to 3.8 percent. Thus, any play on price is normally short-lived and therefore an unsustainable strategy across all products throughout the year.

The rise of smaller retailers getting into the supermarket business across the country is an encouraging phenomenon because it offers certain advantages to customers who, for the most part, are driven by the convenience of buying their shopping items in one location.

But for the retailer, the low margins generally mean that opportunities for revenue growth can best be exploited through expansion and strict cost controls and introduction of non-sales income sources to meet the constant or rising wage, rental and utility bills.

These factors notwithstanding, the economic performance in Kenya has resulted in a dip in general consumption, affecting overall retail industry growth. So even as some retailers are reported to be cutting staff numbers and reviewing their business strategies and models, the fact is that all is not rosy for most, if not all retail chains.

Even though there are extraneous factors that have led to a broader slowdown in retail business and therefore its annual marginal growth, there are a number of internal factors that are within the control of the organisation and which if not managed carefully, can lead to a major strain on the business.

A central theme that has emerged over the years that I have been in the retail business is leadership, governance and observing a strict code of ethics. These issues, though happening away from the public eye, can cause boardroom struggles and conflicts that can lead to a detrimental fallout for the business.

As I have outlined above, one of the ways to increase revenue opportunities for a retailer is to expand and develop multiple locations.

However, this move must be well thought out and planned sustainably, such that all branches are able to sustain themselves. Carry out a thorough due diligence and market study. However, sometimes this arises from a misleading assessment of expected foot traffic, ending up with less than anticipated services and therefore making the retailer regret a bad investment decision.

Staff are a key cog in the retail wheel. A high risk of pilferage and shrinkage remains a nightmare for the sector. This has to be one of the greyest areas for retailers, as internal shrinkage continues to transform into a bigger monster by the day.

We suspect that there are fulltime shoplifting syndicates that plan and execute thefts.

The levels are at an alarming rate and could amount to as much as 2.5 percent of total industry revenue.

While road infrastructure improvement is welcome, some developments can wreak havoc on an established retail business, primarily by altering a very key element of customer convenience — access.

Research has shown that for most customers, access to the retail store is a major factor in the convenience perception and therefore determines which store one will visit. It is for this reason that retailers first consider the viability of a business location in terms of expected footfall.

Woe unto the retailer if the construction project does not alter access, but causes even minimal inconveniences. Customers will bolt and getting them back will be an uphill and expensive task.

Customers also visit a store consistently because they find what they need there consistently. The moment supply is affected and one doesn’t get the product, their whole perception about the store changes and one immediately moves on.

This is the fluidity of retail business and the onus is on them to ensure that any product they stock and registers well with customers must be supplied consistently. It also calls for vetting the suppliers to ensure that they can deliver consistent quantity and quality.

Other challenges are poor financial analysis, lack of customer focus and poor category management, corruption, poor asset utilisation and optimisation of space, a bloated and demotivated workforce, poor supplier relationship management and a lack of investment in retail knowhow.

In order to navigate the retail space, it means that the business needs to be treated professionally. Retailers require specialised skillsets that they must actively invest in.

And so even as the market evolves into the next level and the economy begins an upturn, it will be an exciting time for those who are prepared and have the wherewithal to go the whole hog, patiently. Otherwise, they risk eating the goose that may lay the golden egg.

Mr Kimani is the chairman of the Retail Traders Association of Kenya.