New headache for ‘old school’ retail chains

Business Daily Kenya:  Two of Kenya’s leading retail stores are currently undergoing lean times amid enduring financial woes in a business ...

Business Daily Kenya: 

Supermarket store

Two of Kenya’s leading retail stores are currently undergoing lean times amid enduring financial woes in a business environment dampened by escalating costs.

The region’s largest supermarket chains, Nakumatt and Uchumi — one of the country’s oldest retailers — are finding it difficult to pay workers and replenish supplies leading to low business volumes and shrinking cash flow.

Nakumatt has closed the Haile Selassie and Ronald Ngara outlets including Katwe branch in Kampala saying it has embraced a new operating strategy that will entail closure of more poor performing branches in Kenya and Uganda.

“The accelerated restructuring phase will see the retailer actively manage and reduce its total cost base by up to Sh1.5 billion annually, Nakumatt Holdings Managing Director, Atul Shah said recently in a statement. He said the branch culling exercise will also involve opening of new branches at carefully selected high traffic locations.

“We have also embarked on a shelf stocks optimisation programme to enable us retain a lean variety of profitable retail products.” Last year Uchumi closed five outlets across the country in a similar move to contain costs as part of its turnaround strategy.

The two retailers are facing difficulties paying suppliers, some of who have made a decision to cut supplies until dues running into billions of shillings are offset.

A number of reasons have been proffered to explain why these retailers, who a few years ago were a beacon of success, are currently riding against business headwinds.

Among the reasons are weak internal controls; diminishing consumer purchasing power and strategy goofs. But what is yet to be discussed is how these brick and mortar retailers can leverage on technology to cut costs.

According to a research done by Deloitte, for malls and big retail chains to survive in coming years, they need to reconstruct their business models and focus on providing an integrated strong online and store experience.

“The retail store is being re-imagined for the digital consumer. A new balance needs to be struck between transaction and fulfilment. We believe the store experience will increasingly focus on one of two things: inspiration or convenience,” the research indicated.

While previously consumers were more inclined to the ambience, wide choice and personal touch provided in the brick and mortar retail spaces, convenience created by mini-supermarkets and new opportunities afforded by e-commerce has given consumers a wide range of options.

Take the case of Mary Mukami, who works in Nairobi CBD and stays in Ruai, who says she rarely shops in retail shops in town. “In the past, I always used to buy the basic needs that last a whole month from supermarkets in town but nowadays that has changed.

I buy what is needed for the whole week or daily from a neighbourhood mini-supermarket located on the way to my house. This is economical because when I used to buy in bulk, I would even buy out of impulse what we don’t require,” she said.

“As for clothing and shoes I am getting used to buying from online or those advertised on Facebook. I know some people are sourcing their home appliances like gas cookers, furniture or iron boxes on online platforms.

Technology and convenience has made shopping easier. Why queue in the supermarket in town and carry the goods in a congested matatu when I can buy the same a shortdistance from home or order online?” she posed.

This is the dilemma faced by the big retailers, not just in Kenya but globally. But when other markets like in China and India, faced the same challenge they embraced digital platforms and selling concepts like direct-to-consumer (D2C) eCommerce.

Some local retailers have also started to embrace e-commerce, although in small-scale. According to Kilimall Public Relations Manager Frankline Kibuacha, established retailers like Tuskys and Bata are now selling their wares online to compete with emerging online retail sites.

“Actually, there could be more sellers online than offline (in stores) now,” Frankline says. In the concept (D2C), eCommerce could mean that while a retailer like Nakumatt can still maintain some stores, it devolves some of its market offering to estates by opening small stores, from where customers can make orders online and the goods are delivered on motorcycles or bicycles.

In an article titled China Retail, Retold, Helen Roxburgh narrates how huge physical stores in China were forced by market dynamics to change strategy. A September 2016 report from the Chinese Academy of Social Sciences predicted that one-third of all shopping centres in China could be shut down in the next five years.

“E-commerce is probably the single biggest force exerting pressure on traditional shopping malls,” the article quotes a Jones Lang Lasalle report. “Online retail accounts for most of the growth in China’s retail sales, eroding growth that previously might have gone to malls. Its effects are felt in sectors like fashion that once were malls’ traditional bread and butter tenants.”

For instance, retailer Carrefour, which opened its shop in Kenya last year, has closed 30 stores in China in the last three years and instead expanded its Carrefour Easy convenience store range which offers pick-up for online shopping.

In order to survive and thrive, traditional stores will have to integrate online and offline models. More critically, retail chain stores must boost their mobile and digital commerce operations in order to keep existing customers and attract new ones.

The post New headache for ‘old school’ retail chains appeared first on Mediamax Network Limited.

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