The rain that started beating the once vibrant Uchumi Supermarket is not over yet after the resignation of its Chief Executive Officer, Dr. Julius Kipngetich.
Dr. Kipngetich has been at the helm of the struggling retailer for a period of two years and he leaves at a time when the retailer is still facing a blink future.
In a notice to its shareholders, Uchumi Supermarket board of directors said that they have accepted without reluctance the resignation of Dr. Kipngetich as the company Chief Executive Officer, effective 30th November 2017.
The hunt for the new CEO has now begun with the board saying that the person will be announced in the due course. Kipngetich is said to have left to pursue personal interests.
What is the future of Uchumi Supermarket? Will the turbulence end or will it bring the brand to an end?
In November 2017, Uchumi Supermarket showed some optimism in recovery after it narrowed its full-year loss to 1.68 billion shillings from 2.83 billion shillings as a result of what was termed as improved cost management.
While giving the results, the auditors of the firm gave a qualified opinion due to assets write off and loss of control of the business in Uganda. The outlets of the ailing retailer in Uganda and Tanzania, as well as some in Kenya, have been closed. This, according to the management, has been on the basis alongside assets write off for the auditor general to give a qualified opinion.
Despite the fact that the retailer boasts of having reduced the loss by 39 percent on account of improved cost management implementation, the net sales have continued receiving blows from the environment reducing by more than half to 2.6 billion shillings from 6.4 billion shillings as compared to last year.
Just like its peer, Nakumatt, Uchumi Supermarket has not been paying its suppliers promptly leading to a huge buildup of debts. Most suppliers have stopped supplying to the retailer citing the inability of the retailer to meet their financial obligations. Most shelves remain empty and unconfirmed new sources have been indicating that the retailer has been disposing of most of its assets in a desperate move to remain afloat.
According to the majority of shareholders, since its comeback in 2011, Uchumi Supermarket has only managed to pay dividends once out of the financial results of 2014 and since then, shareholders have been going home sulking, empty-handed.
Uchumi Supermarket limited was a public limited company incorporated in 1975 under the Companies Act.
In the early 2000s, it started to experience financial and operational difficulties which resulted in a marked diminution of the Company’s resources consequently it was unable to meet its financial obligations.
On 31st May 2006, the Board of Directors resolved that the company ceases operations and on 2nd June 2006, the Debenture Holders placed the Company under receivership.
Following a framework agreement between the Government of Kenya, suppliers and debenture holders, the company was revived and commenced operations from 15th July, 2006 under Specialized Receiver Manager and interim management.
By the end of 2008 financial year, Uchumi returned a profit of Kshs 106 million against a loss of 257 million shillings the previous year marking a turnaround of 356 million shillings but that only lasted shortly before the retailer slumped back to the loss-making chamber.
The retailer has also been struggling with the stock market. The image below shows how it has been performing as at the close of business on Tuesday:
What do experts say about the cause of Uchumi’s troubles?
According to European Federation of Accountants F.E.E. (2004), causes of business decline may stem from the external environment and from factors internal to the business.
Internal causes of business decline may be foreseen in advance while external causes are not so predictable. Negative performance occurs when external environmental elements change rapidly and the business is unable to react to these changes. Several authors have identified several internal causes of business decline.
According to Thompson and Shah (2006) when a manager cannot face up company issues promptly, then the business will be overwhelmed and eventually decline. This can be attributed to the management lack of skills, experience, and competencies to make specialized decisions.
Failure of the management to ensure that problems are identified promptly and the correct solutions applied may lead the company to the crisis.
Poor accounting and decisions based upon inaccurate financial information can actually cause problems which may threaten the solvency of the business.
Misleading accounting information blinds the management to the problems a company is facing or recognize them too late. Decision made from this information would be inappropriate causing a decline in business performance (Corporate Renewal Solutions Limited, 2007).
Substandard cash flow management is the imbalance between the payment terms taken by debtors to those given to creditors due to inadequate management of inventory and work in progress.
The most common outcome of a defective cash flow management is a 1 0 decline in liquid assets thus the business is unable to pay its obligations such as loans and suppliers of goods and services. Eventually, the firm lacks the working capital to run to day activities (European Federation of Accountants F.E.E. 2004). Bibeault (2006) points out that weak financial function may appear throughout the company as a general phenomenon, resulting in inadequate financial and accounting control.
An extreme reliance on loan finance can test the company’s cash flow position leading to excessive obligations for the firm to repay capital and associated interest. Unsuitable financing options results in au> inconsistency between the liquidity of assets and the sources of financing; that is financing short-term asset with long-term loans instead of short-term debt.
Here are some of the challenges facing the retailer: