Early May this year, giant retail key player Tuskys announced measures such as delays and reductions of payment to suppliers, banks, and negotiations to reduce rent with their landlords. Tuskys cited slow income flows due to measures set to curb the spread of COVID-19 such as social distancing that saw reduced number of shoppers at a given time in their stores. They also cited a reduction in hours of operation as having a major impact on their revenues. Tuskys took several measures to combat the losses among them merging of branches and shutting down of others to reduce the operating costs.
However, these seem not to have borne any fruits as a letter by their Chief Executive, Dan Githua, on 30th April to Kimani Rugendo the Chair, Association of Kenya Suppliers read “Despite these efforts, some supplier obligations may be deferred, and therefore your members have been impacted.” These series of events led to Tuskys recognizing that they had a debt obligation to various parties amounting to Kshs 884 million. However, an investigation by the Competition Authority of Kenya (CAK) showed an extra Kshs 400 Million owed to various suppliers and banks.
So, what’s ailing the retail sector of our country?
With the demise of the market’s big names Uchumi and Nakumatt, anything surely could go. The retail sector is surely proving to be rough terrain for big names, and the small ones can only use this as a chance to grow their market share and learn from the demise of the giants. Nakumatt’s exit with a debt crisis amounting to a total of Kshs 35 billion in 2018 led to the formation of CAK’S Buyer Power Department.
Tuskys becomes the first retail giant to undergo a charge on abuse of buyer power which refers to the pressure consumers can exert on businesses to get them to provide
- Higher quality products,
- Better customer service and
- Lower prices.
The Competition Association of Kenya has since ordered Tuskys to pay the debt obligations owed to the tune of Kshs 1.2 billion. This situation of unpaid suppliers has led to the latest predicament of empty shelves in most of the stores.
The lavish and pomp we once witnessed in these supermarkets during festive seasons is the same sending some suppliers into a state of confusion as most of these supermarkets rely on debt from suppliers for expanding. The CAK has issued the management of Tuskys with an ultimatum, to clear the heavy debts and honor their supplier contracts between the 1st and 16th of July. Even as the pandemic has had an impact on almost every business in the country, some contracts can be predated to before Corona outbreak in March.
Also, the supermarket has been directed to supply CAK with their bank documents among them monthly bank statements for the past year and management accounts for the last 6 months. On top of the measures taken by CAK in a recent development, the CAK has issued even more strict measures to help pay the aggrieved suppliers and other Financials obligations. Among the measures include, a move to stop the payment of bonuses to directors, opening of branches, or any form of expansion without the approval of the CAK.
The regulator’s directives now mean that the supermarket has to put the interests of suppliers ahead of those of shareholders and management of the company. The CAK is now playing the role which was previously played by CBK, which had the authority to limit decision making in major sector players. A letter by CAK to the company Stated, “Tusker Mattresses Limited from the date of this order must obtain written concurrence of the authority as a pre-condition for expansion, the Authority prohibits from declaring or paying bonuses, fees and other discretionary compensation to directors.”
It is a turbulent time for the family-owned Retail chain giant and for the whole sector and that begs the question, what’s next for Tuskys? and indeed the whole sector? Are we poised to see debates of government bailout as it was for Uchumi or will the measures put in by CAK allow it to stand on its own feet? It’s only a matter of time before the whole truth behind it unravels.
Author: Felix Mbaka, Finance, and Economics
Get real time update about this post categories directly on your device, subscribe now.