Atul Shah: External Pressures Behind Nakumatt’s Collapse in East Africa

:Explore Atul Shah’s insights on Nakumatt’s collapse, citing cash flow crises and external pressures that led to the fall of East Africa’s retail giant.

By Charles Wachira

Atul Shah, the former CEO and a pivotal figure behind Nakumatt Holdings, has consistently attributed the collapse of what was once East Africa’s largest retailer to a mix of external economic pressures, legal challenges, and shifting market dynamics. However, a closer examination reveals that the downfall was also significantly influenced by internal mismanagement, debt-fueled expansion, and governance failures.

Founded in 1992 as a modest mattress shop in Kenya, Nakumatt quickly rose to prominence, expanding into a network of over 60 stores across Kenya, Uganda, Tanzania, and Rwanda by 2016. “We started with a vision to transform retail in East Africa,” Shah recalled during a retrospective interview. “Our journey began humbly, but with a relentless pursuit of growth.”

Shah’s grand ambitions for the company were evident. “We aimed to create a modern shopping experience that East Africans hadn’t seen before,” he expressed in another interview, reflecting on Nakumatt’s meteoric rise. By 2016, Nakumatt operated 45 branches in Kenya and an additional 17 across Uganda, Tanzania, and Rwanda, with flagship stores in Nairobi, Kampala, and Dar es Salaam bustling with customers. The retailer was a household name, known for its wide product range, competitive pricing, and convenient locations.

However, in 2016, signs of trouble began to surface. The company was grappling with severe cash flow problems due to its aggressive expansion strategy. “They grew too fast and too recklessly,” remarked retail analyst Jane Kimani. “The company took on excessive debt to fuel this growth without adequately managing its financial obligations.”

The financial distress was evident, as Nakumatt owed over Ksh 30 billion (approximately $296 million) to creditors by 2017, with Ksh 18 billion owed to suppliers, Ksh 4 billion to holders of commercial paper, and the rest to banks. “At one point, Nakumatt was unable to pay its suppliers, landlords, and employees, leading to a chain reaction that forced them to close numerous stores,” noted financial analyst David Kiptoo.

In an effort to stem the financial hemorrhage, Nakumatt sold a 25% stake in the company to a foreign investment fund for $75 million. “We believed this investment would provide the liquidity needed to stabilize our operations,” Shah stated at the time. “Unfortunately, it wasn’t enough.”

The company faced increasing scrutiny over its financial dealings, with allegations of money laundering surfacing in 2017. The Kenya Revenue Authority (KRA) initiated investigations into Nakumatt’s financial practices, suspecting that the retailer had used its extensive network of stores and complex financial arrangements to launder money. Sources within the KRA reported, “Nakumatt was suspected of inflating invoices and engaging in questionable financial transactions to funnel illicit funds.”

These allegations compounded Nakumatt’s troubles. Global Credit Ratings downgraded the company to BB- as its debts continued to spiral out of control. By 2018, the retailer had closed over a dozen stores, and loyal customers began flocking to competitors like Tuskys and Carrefour.

In January 2018, Nakumatt was placed under administration after creditors filed a court petition seeking intervention. The appointed administrator, Peter Kahi, described the situation as dire. “Nakumatt was essentially insolvent,” Kahi stated during a press briefing. “We were left with little choice but to attempt to sell off assets to settle debts.”

Despite efforts to save the company through restructuring and negotiations with creditors, Nakumatt’s collapse seemed inevitable. “The weight of the debt, coupled with the money laundering accusations, irreparably damaged Nakumatt’s brand,” asserted Jane Kimani. “It was a perfect storm.”

By mid-2020, Nakumatt’s creditors had enough. They voted overwhelmingly to wind up Nakumatt Holdings, signaling the end of an era for a company that had once symbolized the promise of modern retail in East Africa. “The company expanded too quickly without ensuring it had the financial footing to support that growth,” stated Mwangi Njoroge, an industry expert. “When allegations of financial impropriety surfaced, that was the final nail in the coffin.”

Shah, who had steered the company for over two decades, was deeply affected by Nakumatt’s downfall. “It’s devastating to see something we built collapse like this,” he lamented in a statement following the winding-up decision. “We had big dreams for Nakumatt, but mistakes were made, and we couldn’t recover from them.”

The closure of Nakumatt marks the end of an era for retail in East Africa and leaves behind a cautionary tale for other regional businesses. With debts exceeding Ksh 30 billion, the impact of Nakumatt’s failure will continue to ripple through its creditors, suppliers, and former employees for years to come. Its story is one of ambition, growth, and ultimately, downfall—a tragic fall from grace for what was once the region’s largest retail empire.

The Broader Economic Context

1. Economic Challenges and the 2016 Interest Rate Cap: Atul Shah frequently pointed to Kenya’s 2016 interest rate cap as a significant trigger for Nakumatt’s financial troubles. Speaking to The Business Daily, he argued that the cap, which limited the interest rates banks could charge on loans, severely restricted Nakumatt’s ability to access credit during a critical time. “We were growing rapidly, and our working capital needs were significant. The interest rate cap affected the banks’ ability to lend to us,” Shah explained, suggesting that it limited Nakumatt’s financing options as cash flow issues mounted. However, analysts note that Nakumatt was already heavily leveraged before the cap, with its aggressive expansion primarily funded by short-term loans. By the time the cap took effect, the company was burdened with a debt of Ksh 30 billion, split between suppliers, banks, and other creditors.
2. Liquidity Crisis and Supplier Payment Delays: Shah cited Nakumatt’s liquidity crisis as a core reason for its downfall. “The cash flow issue really hurt us,” he admitted in a 2017 interview, explaining that the liquidity problems stemmed from delayed payments to suppliers. This created a vicious cycle: as suppliers refused to stock Nakumatt’s shelves, foot traffic dwindled, leading to further declines in sales. Nakumatt’s outstanding debt to suppliers exceeded Ksh 18 billion, resulting in lawsuits and strained relationships. Despite Shah’s insistence that the company was simply enduring a difficult financial period, suppliers became increasingly frustrated and withdrew support, leaving shelves empty. “We couldn’t recover after that,” Shah lamented.
3. Poor Corporate Governance: Despite Shah’s focus on external challenges, critics and analysts have highlighted poor corporate governance as a central factor in Nakumatt’s collapse. Reports following the liquidation revealed that Nakumatt’s rapid expansion was fueled by unsustainable debt, borrowing heavily to finance its growth strategy. The Competition Authority of Kenya (CAK) criticized Nakumatt’s internal governance and financial practices. “The company’s finances were opaque, with many records hidden or incomplete,” stated a CAK representative. This lack of transparency hindered auditors and creditors from accurately assessing Nakumatt’s financial health.
4. The Cost of Buying Out Harun Mwau: Another significant financial blow came in 2015, when Atul Shah bought out the 7.7% stake owned by former MP and businessman Harun Mwau, reportedly using over Ksh 3 billion in working capital for the buyout. Critics argue this strategic misstep drained Nakumatt of vital liquidity. Court documents revealed that suppliers and creditors accused Shah of prioritizing the buyout over the business’s health, leading to financial missteps that ultimately forced Nakumatt into administration.
5. Failed Attempts at Rescue and Administration: Atul Shah initially sought to rescue Nakumatt through administration in 2018, a process aimed at restructuring the business. However, he admitted that legal challenges and strained relationships with creditors complicated a proper turnaround. Efforts to merge with Tuskys, another leading Kenyan retailer, also faltered due to legal and financial hurdles. “We tried our best to keep the business running and save jobs, but we faced obstacles beyond our control,” Shah explained.

Ultimately, creditors voted to wind up Nakumatt in 2020, concluding that recovery was unfeasible. Shah, whose family had become synonymous with Nakumatt’s rise and fall, expressed regret but maintained that external forces significantly influenced the collapse. “The circumstances we faced were unprecedented, and while we made mistakes, the environment became too challenging to overcome,” he stated as Nakumatt’s liquidation was finalized.

Conclusion: A Combination of External and Internal Factors

While Atul Shah has highlighted various external factors—such as the interest rate cap, cash flow issues, and economic challenges—as the reasons behind Nakumatt’s collapse, it is evident that internal mismanagement, debt-driven growth, and poor governance also played critical roles. Shah’s ambitious expansion strategy, reliance on loans, and missteps like the Harun Mwau buyout compounded Nakumatt’s woes, resulting in a cautionary tale for the region’s retail sector.

Keywords:Nakumatt Holdings:Atul Shah:Retail collapse:Cash flow crisis:East Africa retail industry