Uchumi Supermarkets has embarked on a cost-cutting exercise that will include closing down branches and laying off staff.
The retail chain will also sell a 20-acre piece of land it owns in Kasarani, Nairobi, priced at over Sh2.2 billion, in plans to settle outstanding debts to suppliers.
By mid last month, the retail chain owed suppliers Sh2.3 billion, but it approached Kenya Commercial Bank for a Sh500 million loan to clear some of the dues.
The chain store also announced it had finalized a Sh500m financing arrangement with Kenya Commercial Bank to pay outstanding supplier debts.
In a drastic move meant to cut out brokers from its supply chain, Uchumi will also source for supplies directly from manufacturers.
This would eliminate the practice in which insiders supplied goods to the retailer at inflated costs. This move would also see staff with links to suppliers exit the company.
Uchumi chief finance officer, Mr Sam Oduor, said that Uchumi’s problems began in 2013, when the rights issue that was originally meant to raise Sh1.5 billion was delayed by nearly two years.
The rights issue, which was later undertaken in 2014, raised over Sh800 million, Sh700 million short of the original target.
This affected its expansion plans and payment to a number of suppliers. The store has had challenges getting stock due to delays in paying suppliers.
“The two-year rights issue delay was very expensive as it led to a substantial decline in the share price,” Mr Oduor said today in an investor briefing, adding, “When the rights issue eventually took place, the money was not enough”.
Last month, the retailer fired its long-serving chief executive officer, Mr Jonathan Ciano, on allegations of mismanagement and using land valuations to declare the profits. A report done by Exotix, a London-based investment bank, indicated that the retailer should in fact have declared losses in 2013.
The retailer has now hired KPMG to undertake a forensic audit on the firm’s finances. Its decision to halt the expansion plans was reached after the firm said the strategy had been undertaken without proper funding. Most of the stores to be closed will be in Tanzania and Uganda.