Nakumatt eyes Sh1.5bn savings in cost cutting drive
Regional retailer Nakumatt has finally bowed to challenges brought about by cash flow constraints announcing plans to shut a number of its branches in a new recovery plan.
The move follows years of aggressive expansion that was met with declining revenue and changes in consumer spending.
Nakumatt plans to close non performing branches in both Kenya and Uganda while focusing on keeping a lean inventory of goods to avoid getting stuck with slow moving products.
In the strategy dubbed Nakumatt 2.0, focuses on cost cutting by getting rid of non performing branches while optimizing cash at hand to optimally fund operations.
The retailer has been faced with stock out over the last six months with a number of suppliers holding back on supplying goods over unpaid dues.
It is estimated that Nakumatt owes its suppliers up to Sh15 billion.
Announcing the restructuring plan, Nakumatt Holdings Managing Director Atul Shah said the move could save the firm as much as Sh1.5 billion annually.
“The branch culling strategy will start off with sub optimally performing branches for whose leases contracts are due for renewal to be followed by branches in poor locations,” Mr Shah said.
Last month, Nakumatt was forced to shut down one of its branches in Uganda over rent arrears highlighting its financial woes.
The move by Nakumatt illuminates challenges faced by retailers in the market.
Uchumi Supermarkets which has been on the brink of insolvency plans to turn its self around in an almost similar manner, closing non performing outlets while also toying with the possibility of franchising its store to cut costs.
For Nakumatt, lack of cash at hand will see it focus on goods that are able to clear the shelves faster, generating much needed revenue.
“We have also embarked on a shelf stocks optimisation programme to enable us retain a lean variety of profitable retail products,” he said.
The move is expected to affect a number of employees with Nakumatt also freezing future employments.
Nakumatt has been struggling under a mountain of debt and has been engaging a strategic investor to pump in money.
As part of the strategy, plans are underway to revert the struggling Nakumatt Haile Selassie branch located at KU Plaza, back to Kenyatta University, by the end of this month; at the expiry of the current lease.
The closure of Nakumatt Haile Selassie will be the third closure to be undertaken by the retailer in recent months following similar developments at its former Nakumatt Ronald Ngala and Nakumatt Katwe in Nairobi CBD and Kampala, Uganda respectively.
Mr Shah said all the employees previously assigned to work at Nakumatt Ronald Ngala have already been absorbed at other Nairobi branches.
Staff members currently serving at Nakumatt Haile Selassie, will be absorbed at other Nakumatt branches ahead of their re-deployment to upcoming branches.
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