… the ELEPHANT on its knees.
In 1976 Mangalal Shah filed for bankruptcy after a lengthy battle with his creditors. Son’s, Atul and Vimal, who owned Furmatt at the time, settled their father’s debts. Around the same time, Mangalal’s brother Hasmuhk Shah, was immigrating to the UK and sold Nakuru Mattress to his nephews, giving birth to Nakumatt.
With 63 stores across Uganda, Kenya, Rwanda & Tanzania; Nakumatt is a case study for the evolution of the African retailer. The retail sector on the continent has shown steady growth since the early 2000’s, mainly due to the expansion of the middle class, who now has easy access to credit to finance their consumerism.
Simplified, it was massive tax liability and stock shrinkage caused by collusion between staff and suppliers together with gross mismanagement and irresponsible expansion of their footprint that brought this juggernautic charging African Elephant to its knees.
Issues that caused the collapse
A business reporter from Standard Digital stated that Nakumatt’s troubles are largely due to their total debt burden that grew rapidly between 2012 and the first 6 months of 2017 from Sh4.7 Billion to a colossal Sh18 Billion. This has caused Nakumatt’s short-term debt repayment period to be extended from 30 days to 120 days.
In addition, traffic at the Nakumatt Lifestyle building had dropped by 37% due to restrictive construction work which limited access into the centre in Nairobi. This caused a staggering decline of Sh 1.6 Billion in headline earnings over the previous year.
The Strathmore University Business School Family Business Programme’s Muga (2017); states that family run businesses in unregulated sectors (such as transport, retail and hospitality) are more susceptible to failure.
The evolution of the economic environment in the region rendered Nakumatt’s centralised decision making process obsolete.
Due to the fact that competitors eg. Walmart & Carrefour are global concerns and rely on a decentralised management structure, they exhibit a significantly higher level of agility when it comes to ground level decision making.
The family placed responsibility for their empty shelves on teething problems with their newly implemented stock management system; which allegedly delayed reporting that new stock needed to be ordered; when in-fact it was the company’s un-serviced debt which greatly restricted it’s buying power resulting in consumer dissatisfaction due to empty shelves. Consumers were thus forced to purchase more expensive brands from Nakumatt’s competitors.
With the entry of global players into their markets, Nakumatt took the decision to open new stores in regions where their competition had already cornered the market.
In order to negotiate lower rental rates, the company entered into long terms leases, which left Nakumatt in the unfavourable position of having to honour leases even after they could no longer trade due to stiff competition.
Lesson’s that family owned enterprises can learn from Nakumatt
The rise and fall of Nakumatt in a relatively short period of time (40 years) has offered the opportunity for family owned businesses to learn from Nakumatt’s mistakes.
The Nakumatt story is not a first in Africa and will surely not be the last. In 2015 we witnessed Athi River Mining, cement makers, also getting caught up in an expansion overdrive that accumulated huge debt for the company forcing the Paunrana family to cede a large stake to foreign investors, CDC Group, who reduced company debt with a large capital injection putting the company on a growth path again.
Nakumatt’s dire need for a capital injection can be seen as an opportunity for African investors to reignite the retail giant provided that said investors are allowed to offer governance and management skills and steer it clear of the challenges that have led it to its current predicament.
Nakumatt may also take a lesson from the Ghanaian retailer, Melcom Group (a family owned business) that opted to make use of technology and express delivery services to make product offerings more accessible. Melcom Group is now focused on a growth strategy as opposed to an irresponsible expansion strategy. Businesses need to circumvent the desire to be seen doing more or being all over even where there is no demand for their presence.
Within the chaos of the disruption, Nakumatt must not lose sight of the fact that they still have a somewhat loyal customer base and their agility at this time will determine, in part, their survival.
With this second advent of the Shah family facing financial ruin, it might well be time for the family to accept that, whilst their past has brought them this far, their current business model and management structure cannot take them into the future on an African continent which is ever evolving, moving forward at an increasingly rapid pace and that has within itself the ability to leap-frog it challenges.
Vusi Thembekwayo is a business speaker who empowers his audience with research findings, models and tools that they can immediately apply in their business or careers to achieve “leapfrog” results. See http://vusi.co.za for more information.