Why retail chains are bleeding

Business Daily Kenya:  Suppliers claim supermarkets delay payments running into millions channelled to fund ambitious expansion of branches...

Business Daily Kenya: 

Suppliers claim supermarkets delay payments.

Suppliers claim supermarkets delay payments running into millions channelled to fund ambitious expansion of branches

The crisis rocking major retail chains can be sorted if they stop leveraging on suppliers’ cash to fund growth. Late payments have thrown the sector, that leverages on an efficient supply chain, into a storm which can be traced to the past two years.

Association of Suppliers of Kenya (ASK) says retail chains have been trading on credit whose terms they never honour. “We are in this situation because supermarkets have been growing on suppliers’ money.

Most supermarkets do not honour verbal or written agreements, “said ASK chair Kimani Rugendo. The suppliers say that, for fear of losing out prime space on supermarket shelves, they are obliged to keep supplying despite delayed payments.

The practice sinks retailers into huge debt — now running into millions of shillings — which they cannot pay. Speaking at the Kenya Trade Week expo yesterday, Rugendo also asked retailers to consider ordering goods in lower quantities which they can pay on time.

“Supermarkets should not keep bulk purchases,” he said, adding that holding supplier’s money for long could also have led to greed among retailers, who take about three per cent from sale of commodities, meaning that 97 per cent belongs to the suppliers and government.

Rapid expansion by some retailers was another major concern raised by participants during the forum. Governance issues that occasionally arise within the family owned retailers was also identified as a hindrance to growth of the sector.

The significance of the cash crisis facing the sector is manifested in an estimated Sh40 billion in outstanding payments for goods delivered, some having delayed by between 180 and 240 days.

Retail Traders Association of Kenya, however, asserts that overdue is less than Sh1 billion. That the Sh40 billion entails short-and long-term financing facilities, which are still in service as no defaults have been reported by any financier.

The Government places the amount owed to suppliers at an even higher figure following disclosures from troubled retailers as it tried to understand their challenges.

“We have retailers owing suppliers up to Sh48 billion,” said Trade Principal Secretary Chris Kiptoo on Monday when he launched the National Trade Policy. Nakumatt and Uchumi supermarket are currently undergoing cash crunch which has adversely affected supplies.

A study entitled ‘Kenya Retail Trade Sector Prompt Payment’ says by December 31, last year, some five supermarkets accounted for 92 per cent of the total debt owed for more than 60 days.

Suppliers want the number of days taken to pay reduced particularly for the small and micro-entrepreneurs who supply less than Sh100,000. The Trade ministry is currently refining draft regulations which will be presented to parliament for consideration when business resumes after the General Election. It proposes that retailers face closer scrutiny to protect suppliers from exploitation.

The post Why retail chains are bleeding appeared first on Mediamax Network Limited.

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