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Deacons' board decided to close operation in
Tanzania after five-year losses.
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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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