Deacons to quit Dar market after five-year losses

  Deacons' board decided to close operation in 
Tanzania after five-year losses. 
Luxury fashion brand Deacons Kenya has closed its Tanzanian subsidiary after failing to stop its five-year loss-making streak.

The company has announced that it will leave Tanzania Fashion Stores dormant to cut its losses which stood at Ksh13 million (Tsh 234m) in 2011.

Another Ksh20 million (360m) loss is expected as the firm writes off assets and inventory at the end of this month.

The exit has seen 15 employees lose their jobs.

Deacons blames the losses posted by the subsidiary to a small middle class and the fact that expatriates working in the country preferred to shop in their home countries, denying it sales. The losses and exit of Deacons mirrors the difficulty Kenyan companies have been facing in Tanzania.

KCB and East African Cables, for instance, have made losses running into millions of shillings in the neighbouring country, with the former’s subsidiary managing to post a profit for the first time last year despite being in Tanzania for several years.

“Tanzania is a relatively small economy and state-owned corporations dominate most of the formal industries.

Kenyan companies going into Tanzania should focus on niche markets where they can thrive as they await for significant economic growth to make bigger investments,” said Robert Bunyi, the CEO of Mavuno Capital.

Deacons ventured into Tanzania in 2007 with the Truworths, Identity and 4u2 brands but could not grow its store beyond the one outlet at Mlimani City mall in Dar es Salaam.

“The fact that this business has been unprofitable for the last five years despite various interventions ... meant that we needed to right size the subsidiary,” said Peter Njoka, the firm’s chairman.

The weak demand saw the subsidiary’s revenues trail costs, leading to losses which could not be tamed by higher price tags.

Deacons says shopping for luxury items is still a new concept in Tanzania, meaning that dealers in such items have to contend with a fragmented market. This in turn leads to high rentals for retail space.

Deacons said leaving the Tanzania Fashion Stores dormant will allow for a future possible resumption of operations by avoiding new legal and registration costs.

The company said it will continue to pursue its regional expansion. It has announced plans to open three additional brands --Babyshop, Mr Price Home and Angelo — in Kampala by September.

Deacons plans to raise Ksh800 million(Tsh14.4bn) from the Nairobi Securities Exchange (NSE) through an initial public offer (IPO).
Source: Business Daily, www.businessdailyafrica.com, reported by its reporter in Nairobi, Kenya
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