KENYA, MAY 3 — Fashion retailer Deacons East Africa has reported a Ksh842million loss for the year ended December 31, blamed on a “challenging economic environment” in Kenya last year.
This is more than triple the Ksh278 million loss posted the previous year.
The Nairobi Securities Exchange listed firm has attribute the wider loss margin to challenges in the formal retail sector in Kenya which include over supply of formal retail property leading to cannibalization and the collapse of key anchor tenants(including Nakumatt), that reduced customer footfall into shopping malls by over 60 per cent.
The firm has also noted that the sector has recorded increased competition and change in customer shopping trends. These factors depressed its overall performance, the management said.
“The Group also faced disruptions in its supply chain following the decision by Mr Price to reduce trading margins, which led to cash flow constraints that negatively affected performance of all brands,” it said in its financial statement for the year.
Mr Price Group took full charge of its Kenyan business on April 1, assuming the operations of its 11 stores in Kenya. The move ended a decade of running the brand by Deacons.
“Mr Price initiated the purchase of the Mr Price brand and withdrew supply of product ahead of the busy Christmas period. Consequently, the Group’s revenues declined by Ksh303 million compared to the prior yea,” Deacons reported on Wednesday.
According to the firm, The MR Price brand alone contributed a decline of Ksh 324 million with a margin loss of Ksh154 million as a result of discontinued supply of stock by the Franchisor.
“In addition, MR Price fixtures and inventory impairment amounted to Ksh150.6 million with an overall loss contribution of 78 per cent to the bottom line,” the management noted.
The business bore further impairment from discontinued operations of the Babyshop store at the Junction Mall and the Angelo store at the Sarit Centre of Ksh15 million.
“On the other hand, the F&F brand continued to post positive results across the chain with revenue of Ksh131 million in 2017,” Deacons said, “The Board took drastic cost cutting actions in order to counter the drop in revenue including but not limited to a reduction in staff levels and back office operations.”
Deacons has also blamed the drought that hit Kenya(its largest market) last year, high-energy prices, an extended electioneering period and a credit crunch caused by a reduction in bank lending to the private sector.
The company reported operating costs of Ksh1.4 billion up from Ksh1.3 billion in 2016.
The increase in the operating costs by 8.1 per cent is attributed to the new stores launched in 2016 whose full year impact was recorded in 2017.
“Following the shareholders’ approval on Thursday, 5th April 2018 to dispose of the MR Price brand, the Board is confident that its new strategy for the period 2018 to 2021 will return the business to sustainable profitability,” the firm said.