Home ECONOMY Low spending hurts Christmas stores sales

Low spending hurts Christmas stores sales

by biasharadigest
Economy

Low spending hurts Christmas stores sales

Patrons pose for a selfie with Jatani Hussein,
Patrons pose for a selfie with Jatani Hussein, “Santa Claus” at the Two Rivers Mall Santa’s station on December 21, 2019. PHOTO | DIANA NGILA | NMG 

Kenya’s retailers have suffered their worst Christmas in years on reduced consumer spending, reflecting cash flow problems in an economy plagued by job cuts and modest economic activity.

Supermarket chains, dealers in clothes and food items like chicken are reporting lower or flat sales, removing the festive cheer in a period that traditionally encourages over-indulgence.

Disappointment over the Christmas season sales comes at a period when corporate Kenya has witnessed reduced profitability that has ushered in job cuts, freezes in hiring and near stagnant wages in the race to protect profit margins.

The national and county governments have also delayed payments totalling more than Sh100 billion owed to suppliers, forcing some to cut back operations, shed jobs or face auctioneers after failing to service their bank loans.

As a result, the amount of cash in Kenyans’ pockets has dropped to a four and half-year low with the Central Bank of Kenya (CBK) data showing that money circulating outside banks dropped to Sh176.9 billion in October — the lowest since July 2015.

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Retailers are feeling the pinch from the cash flow crunch, forcing many, especially supermarkets, to offer large discounts in the struggle to sell their stocks.

But the tourism and transport sectors have largely been unaffected during the festive season, riding on the back of increased travel that has boosted occupancy in hotels and boosted airlines, bus and matatu operators.

Supermarkets—which are perfect bellwether for measuring consumption power—say traffic has increased in the stores, but the consumers’ shopping basket is smaller.

Customers have stuck to buying basics like bread, milk and sugar, where the margins were thinnest, retailers say.

Dan Githua, the chief executive of Tusker Mattresses Ltd, said the rise in shop traffic had not resulted in increased sales.

“Basket value size has been depressed, confirming what has been said severally that consumers’ disposable incomes have come under pressure,” Mr Githua said.

“Regionally, it seems Mombasa has seen the largest shrink in basket sizes, while the highest growth in spend gas continued in Western Kenya in Kisii, Kisumu, Kakamega and Eldoret.”

Similar comments were echoed by clothes dealers who traditionally witness sales jump during the Christmas as consumers shell out thousands on new clothing and footwear.

“Right now we can stay for over an hour without a single customer walking in. It’s been this bad since mid this year,” says Lucy Jerusha, who sells children’s clothes on Moi Avenue.

A huge chunk of clothes dealers had expected an upturn in sales, forcing some to increase stocks.

“I import my stuff from China and it’s so abnormal to have stock that isn’t moving,” said Esther Valentine, who deals in lingerie and baby wear at Sasa Mall

“So, right now we are just living from hand to mouth. We are only managing to raise rent which is Sh40, 000 a month. No savings whatsoever.”

The Kenyan economy grew by 5.6 percent in the second quarter ended June, down from 6.4 percent in the same period a year earlier.

Despite the expansion, private sector activity — which translates to jobs and higher pay — has remained muted.

“Broadly speaking, the last two years have been tough and challenging for the private sector and by extension, the pockets of an average consumer have not been deep enough,” said Jibran Qureishi, the lead economist for Markit Stanbic Bank Kenya’s Purchasing Managers Index (PMI), which measures monthly business activity through interviews with company managers.

Companies are struggling with reduced sales and profits in a soft economy that has persisted since 2017 when Kenya went through a bruising General Election.

Key firms have put on hold hiring of new staff in an economy that has also witnessed a string of job losses in recent months affecting nearly all sectors.

This is reflected by a record number of firms listed on the Nairobi Securities Exchange issuing profit warnings.

Most companies even failed to adjust workers’ salaries in line with inflation or offer Christmas bonuses, which are critical in offering demand to the retail sector.

Federation of Kenya Employers (FKE), the umbrella body, has defended the stagnant pay and lack of cash bonuses, arguing that it’s a reflection of the soft economy in 2019.

“This year, we didn’t have money; there’s little money flowing in the economy. People are broke. Ordinary person is really struggling and, the cost of living is high and unpredictable,” said FKE executive director Jacqueline Mugo.

“Even the over five percent growth in GDP (gross domestic product) is not translating into money in people’s pockets. It’s a difficult Christmas for people, and we hope that this will be reversed going forward.”

High-net worth investors and companies with billions in shillings in fixed accounts have opted not to invest in expanding businesses or starting new ventures, which ultimately have the effect of putting money in people’s pockets and boosting circulation of cash outside banks as well as short-term deposits.

CBK data shows that long-term and fixed deposits associated with the wealthy and cash-rich corporates rose slightly from Sh1.34 trillion in May to Sh1.4 trillion in September.

Foreign currency deposits also rose from Sh577.9 billion to Sh607.4 billion, an indication that the wealthy are protecting their value and hedging against the local currency.

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