Nakumatt is the biggest retailer in East Africa. They have 60 stores across the region and at one time, 2013, closed in on sh.1 billion in profits. A business of this stature may seem invincible but here they are now facing problems we would expect them to surmount. You should learn from these 5 mistakes they made:
1.Walking into cash flow problems
Cash flow problems have been pointed out as the root cause of Nakumatt’s struggles. The retailer simply does not have enough money to go round, at the moment. One of the consequences of this has been delayed payments to suppliers who, have in turn, stopped doing business with them.
In your business, you will want to keep in check some of the causes of poor cash flow. These include; slow sales, interest payments, uncollected debt and rising operation costs. Once you begin running out of money, you too will face problems of paying creditors, suppliers and employees. This will force you to look for funds to stay afloat. Which leads me to point two.
2.Getting into a debt crisis
A report by Global Credit Ratings (GCR) revealed that Nakumatt now owes sh.18 billion. This stems from their choice to rely heavily on debt for expansion and to use the same tool to cover for working capital shortfalls. This was the alternative they had to remain a family-owned business but they are now selling 25% stake, for sh.7 billion, to an unnamed investor.
You are free to get your business into debt (you are actually free to do whatever want, think about it) and if you avoid some of the pitfalls of financing you’ll end up fine. It is important that you prioritize repayment by ensuring you can handle interest payments now and in the future. If things don’t go as planned then let piling on debt be a last resort.
3.Poor growth management
Your success can be the cause of your failure. Did Nakumatt grow too fast? Or are we all being business development experts in retrospect? All I can ascertain is that Nakumatt ended 24-hour shopping at Lifestyle and closed the Ronald Ngala street outlet. The leadership at the retail chain has blamed high operating costs for their woes; one of the results of not managing growth well.
As your business gets bigger you will not only face increasing costs of doing business but also your ability to react to changes will be stifled. Bigger businesses are just as adaptable. Maybe you should consider remaining a small business. Besides that, you can avoid Nakumatt’s growth conundrum by employing specialized men and women. The time comes when you have to give way to individuals better than you.
4.Alienating suppliers and customers
Nakumatt Managing Director, Atul Shah, did admit that the retailer was “perceived as expensive” at Ronald Ngala street. This shows he didn’t agree with the assertion. So how did this perception come about? Secondly, the Nakumatt Blue Label gimmick undercut suppliers and waged a war against customers’ brand loyalty. I get it, retailers need to make more on their low profit margins. At least to fight the claim that brick and mortar retail is dying.
When your businesses arrives at the position of superior bargaining power, in relation to suppliers, it’s still wise to consider your good long term relations. Take advantage but be ware that the tables always turn. And it goes without saying that you should never lose touch with your customers. A bad reputation is hard to come from.