Nakumatt has been evicted from a further 14 stores in Kenya after landlords lost faith in Administrator Peter Kahi’s recovery plan. The move almost certainly means Nakumatt will cease trading within weeks.

Earlier this week, Nakumatt was asked by 14 landlords to abandon their premises on account that the landlords have lost faith in in the viability of the retailer’s recovery plan. The joint statement was made by a group of landlords which includes the owners of most of Nakumatt’s 20 remaining store properties in Kenya, such as Galleria, Nyali and Karen Crossroads. The move comes as Tusky’s has formally pulled out any deal with Nakumatt, citing dissatisfaction with the Administrator’s recovery plan.

The landlords have stated that having Nakumatt as a tenant has turned into a liability. All fear they might not be able to honour their own commitments and have their properties seized in face of Nakumatt’s default in rent payment. In short: having Nakumatt as a tenant is driving up the credit risk for mall owners.

Nakumatt’s plan has been that, in the absence of a cash injection, it could scale back unprofitable operations while trading its way out of debt. This plan depended on Nakumatt’s suppliers and landlords offering to keep lines of credit open.

Nakumatt’s suppliers are more dependent on the retailer and have been slightly more open to compromise. At the same time, they have been furiously working to build business with expanding chains such as Naivas, Choppies, Carrefour and Shoprite.

Landlords, however, have run out of patience: there is a ready supply of supermarket retailers waiting to take up anchor tenancies in malls and Nakumatt is a yawning liability.

If these 14 stores shut down, it leaves Nakumatt with 7 supermarkets in Kenya and four supermarkets in Kigali, Rwanda.

Nakumatt has debts of KSh35.8bn ($355m). It was vanishingly unlikely Nakumatt could trade its way out of debt even with 20+ stores. The latest move means Nakumatt will cease trading entirely in weeks.

The pace of store closures has increased

Since it was forced to reveal its financial problems in 2017, Nakumatt embarked on a streak of store closures and job losses that that were meant to cut costs. Until 2016, Nakumatt had bet on a strategy of intense store expansion, funded by unsustainable levels of debt. That proved unsustainable. Nakumatt chose to shut down a significant portion of its network in order to keep its flagship stores open and keep its key stores stocked.

However, what first appeared to be a selective strategy of store closures soon turned into landlords electing to evict Nakumatt from their malls.

In Tanzania and Uganda, Nakumatt has been forced to close all of its stores. This time last year, Nakumatt had 62 stores in East Africa. Now its store network has been reduced to a mere 11 stores. We know that Nakumatt’s stores in Rwanda have also been suffering supply problems – no bottled water in its flagship store when our researcher visited this week, for example.

Anatomy of a slow death

Restocking of Nakumatt Nyanza, in Kisumu, Kenya where a small number of SKU’s cover a large portion of shelves.

When it first assumed functions in January, Nakumatt’s insolvency administrator had as one of its top priorities to reach an agreement with suppliers. This agreement would be essential for Nakumatt to start restocking its stores and get consumers back in. In February, Nakumatt put forward a new partnership model that proposed an exchange of debt for equity. However, this proposal was met with immediate backlash from suppliers who have reached breaking point after repeated failures to settle debts. Further proposals have been rejected by suppliers. After a brief restocking of some stores that didn’t look very healthy at all with a very small number of SKU’s covering a large portion of shelves, stocks are on the low again and stores keep closing.

Nakumatt’s effort to keep the brand in the market has been proven largely futile. At the moment, Nakumatt has no stores in central Nairobi – certainly not in the city’s major malls -, and has lost most of its reach to consumers outside the capital, having shut down all of its networks in major towns like Mombasa or Kisumu.

Looking for a liquidity injection

Ever since Nakumatt’s financial struggle became public, the company’s management started searching for a strategic investor that could get the company back on track while it restructured its operation.  A series of potential investors were announced but no actual investor ever appeared, increasingly making the announcements seem like a way to appease creditors.

The only viable solution presented was the merger with fellow Kenyan retailer Tuskys. Tuskys would assume Nakumatt’s debt and incorporate its store network. As Trendtype previously argued, even if it had happened, the merger would hardly prove a solution given Tuskys’ own financial struggles. The negotiations fell through earlier this week and prompted Nakumatt’s eviction from 14 stores.

The momentum for a government bailout which at once seemed to steer the chances to Nakumatt’s side, has definitely faded away. With no investors lining up and with the only minimally viable plan off the table, Nakumatt’s chances of getting a much needed cash injection seem very slim, if nonexistent.

No way back as Carrefour, Shoprite and Naivas take advantage

Debt is not Nakumatt’s only problem. In the last twelve months the Kenyan retail landscape has changed dramatically. Most notably, domestic rival Naivas has opened several stores in a bid to target the Nakumatt’s lower end consumers.

International retailers are taking the opportunity to seize the Kenyan retail sector. By April 2018 Carrefour will have opened three new stores and increased its retail floorspace in the country by almost 110%, up from 2 stores in 2017.

South African giant Shoprite has announced seven stores in one go. Walmart’s subsidiary Massmart has laid plans for a Kenyan expansion with new Game stores. Botswanan chain Choppies has also intensified its presence in the country.

Accounting for both Nakumatt’s store closures and the expansion of other retailers, Trendtype estimates Nakumatt has lost more than 75% of the market share it held a year ago.

Even if Nakumatt’s remaining stores were somehow viable and debt free, it has lost most of it profitable sites at a time when other supermarket retailers are expanding. The loss of 14 stores will see Kenya’s market leader in early 2017 exit the top 5 of leading supermarket chains.

It is difficult to imagine a scenario where Nakumatt does not fail in the next few weeks. It cannot trade its way out of its debt. It hasn’t found an investor and won’t find one. It has reached the end of the road.