Tuskys faces regulatory scrutiny after defaulting on payments to suppliers. Covid-19 appears to have dealt a heavy blow to the retailer. Tuskys IPO plans now seem to be in doubt as the company has run into financial troubles.
Tuskys faces serious financial challenges that have triggered regulatory action and now cast doubt on the long-anticipated Tuskys IPO or initial public offering of its shares.
Tuskys operates supermarkets in Kenya and Uganda. In Uganda, specifically, the retailer runs the Mavazi fashion brand. In Kenya, its domestic market, Tuskys operates 65 supermarket outlets, making it the country’s largest supermarket chain.
Tuskys appears to have fallen on hard times just as the coronavirus disease pandemic continues to devastate the economy. The virus pandemic has caused loss of millions of jobs, consequently reducing consumer spending and hurting sales for retailers like Tuskys. Further hitting retail sales is the cut in operating hours because of the curfew in place to curb the spread of Covid-19.
Amid the weak sales because of the pandemic, Tuskys has defaulted on the payments of its suppliers, resulting in some items disappearing from the shelves and causing frustrations to shoppers. In another sign of financial stress at Tuskys, the retailer has turned to cutting jobs in an apparent effort to control expenses and preserve cash. But the job cuts are now straining the retailer’s relationship with labour unions, which have taken it to court to stop layoffs.
Regulator freezes Tuskys store expansion and opens probe into financials
Tuskys’ financial woes have caught the attention of the regulator. The Competition Authority of Kenya (CAK) has hit the retailer with several restrictions after learning that it has defaulted on the payment of more than Ksh1.2 billion to suppliers.
To ensure that Tuskys holds enough cash to pay its suppliers and continues to operate normally, CAK has moved to stop Tuskys from opening new supermarkets without first obtaining its approval. The CAK has set July 16 deadline for Tuskys to clear the outstanding supplier dues. Tuskys executives could go to jail or face fines of up to Ksh10 million for failing to settle supplier dues as directed.
At the same time, CAK has opened investigation into Tuskys’ financials. Fearing Tuskys may be broke, the regulator has demanded that the retailer turn over its monthly bank statements for the past one year as well as other financial records. Notably, regulatory scrutiny of retailers has heightened following the collapse of once retail giant Nakumatt. Nakumatt went down with Ksh30 billion in debt, including Ksh18 billion owed to suppliers and $8 billion in bank loans.
Tuskys pegged IPO on financial stability
Tuskys IPO has been anticipated for a long time. In 2015, the supermarket chain operator outlined a 5-year strategic plan that would culminate in an IPO by 2020. Indeed, Tuskys’ move to join the Nairobi Security Exchange’s Ibuka programme signalled it was inching closer to going public. The Ibuka programme prepares companies for IPO. More than a dozen companies have joined the Ibuka programme.
At one point, it appeared Tuskys IPO would take place in 2019. But the retailer pushed back the listing plan to allow it seek out an investor to inject more cash into the business and guide its expansion.
On expansion, Tuskys sees room to triple its existing store footprint in Kenya. The retailer wants to open more supermarkets in the country to as it seeks to grow its market share. It has adopted franchising model to enable it open up more outlets quickly. Tuskys rivals Naivas, Carrefour and Quickmart have continued to open new outlets, putting pressure on it to keep up. Notably, Quickmart and Tumaini merged to better compete with market leaders Tuskys and Naivas.
In addition to widening its physical store network, Tuskys is building out its online presence. It has launched an online marketplace where it sells its own items and third-party merchants can also list their products. Moreover, Tuskys has partnered with courier firm Sendy to deliver packages for its online shoppers as part of the efforts to grow its digital business. The retailer aims to generate 20% of its revenue from digital sales by 2022.
Tuskys pegged its IPO on first achieving financial stability. Tuskys CEO Dan Githua said last year the retailer would like to avoid a perception that its IPO was only motivatedby a need to raise money to finance expansion of the business. Therefore, Tuskys wanted to bring on board a cornerstone investor to not only put more money in the business but also assist with clearly outlining its expansion roadmap before it goes public.
But Tuskys’ financial woes that have drawn the scrutiny of CAK and resulted in restrictions on new supermarkets opening show the retailer might not be ready for IPO in 2020.