KENYA – 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 Ksh2.2 billion ($22 million) as it works to settle outstanding debts owed to suppliers.

Most of the stores to be closed will be in Tanzania and Uganda.

By mid last month, the retail chain owed suppliers Ksh2.3 billion ($23 million), but it approached Kenya Commercial Bank for a Ksh500 million ($5 million) loan to clear some of the dues.

The chain store also announced it had finalised a $5 million financing arrangement with Kenya Commercial Bank to pay outstanding supplier debts.

In a drastic move meant to cut out brokers from its supply chain, the retailer 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.

The retailer’s acting chief finance officer, Mr Sam Oduor, said that Uchumi’s problems began in 2013, when the rights issue that was originally meant to raise Ksh1.5 billion ($15 million) was delayed by nearly two years.

The rights issue, which was later undertaken in 2014, raised over Ksh800 million ($8 million), Ksh700 million ($7 million) short of the original target.

This affected its expansion plans and payment to a number of suppliers. The retailer 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 Tuesday 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 and chief finance officer Chadwick Omondi Okumu the 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.

The retail chain was put under receivership between July 2006 and March 2010 on heavy debts. Dr Ciano, who was hired as the receiver manager, was credited for turning around the retailer. During this time, it lost its market share to local retailers such as Tuskys, Ukwala and Nakumatt.

July 7, 2015;–lay-off-staff/-/2560/2778374/-/bdvtct/-/index.html