Commentary of the PerformanceThe overall retail trading environment during the period under review was characterized by extraordinary and exceptional events that adversely affected the business, key among them being as follows:
(i) The Country experienced a prolonged drought
that led to higher food prices. This in turn led to an increase in overall inflationary pressure which rose to a high of 11.7% in May 2017. The reduction in disposable income, coupled with the lack of consumer credit from the banks had a direct impact on customer shopping trends.
(ii) Whilst the overall unit sales increased by 14% and the total number of transactions by 9%, the average unit price sold reduced by 13% with a corresponding drop in per customer average spend by 17% compared to the same period in the previous year.
(iii) The retail space increased from 169,516 square feet in 2016 to 190,341 square feet in 2017 on account of 8 additional stores.
However, a marginal increase of 5% in revenue was not sufficient to cover the incremental cost from these stores. The significant
increase in overall availability of retail space as a result of the development of new malls was not proportionately matched by an
increase in the number of shoppers. The resultant cannibalization led to a drop in traffic into all malls.
(iv) The non-performance of major anchor tenants reduced traffic into the malls. With 98% of our stores operating in malls whose
anchor tenants are experiencing stocking challenges, data shows that footfall has decreased by over 60% with customers choosing to
visit other facilities.
(v) For the first six months of the year, the Country was affected by the national elections fever which reduced consumer demand and
spending.
(vi) Aggressive sale offers in Q2 reduced the average gross margins to 39% but enabled the business to flush out stock and improve liquidity.
On a positive note, the two new F & F stores have registered very encouraging results indicating that its value proposition was well
received and has great potential to grow into a chain of stores. The Bossini, Adidas and Lifefitness brands have also posted good results signaling that the “wellness and leisure” market segment will continue to present growth opportunities.
The Revenue for the period increased by 5% to Kes 1.077B compared to Kes 1.026B in 2016. This marginal growth was attributed to the
slow start of the four stores at the Two Rivers Mall and the issues discussed above.
The Net Operating Profit decreased by 32`% compared to the same prior year period following a reduction in margins by a major brand.
This reduction of margins did not lead to an increase in volume sales and has had a significant negative impact on the results.
The Total Operating Expenses increased by 12% as a result of the increase in number of stores and the staff rationalization program that was implemented in May 2017. The Group registered a Loss After Tax of Kes 180.4M compared to a loss of Kes 52.6M in 2016.