Deacons to quit Dar market after five-year losses

Deacons, the clothing, and lifestyle goods retailer, will close its operation in Tanzania in the next two weeks due to a hostile business environment.

The firm’s board decided to exit the country after its subsidiary, Tanzanian Fashion Stores, incurred loss worth Sh13 million in the full year ending December 2011, marking a fifth straight year of losses despite efforts to turn it around.

The Nairobi-based retail chain will close three stores in Tanzania — Truworths, Identity and 4u2 branded stores, and in the process shed 15 jobs.

Rental space

“Doing business in Tanzania has been extremely difficult. The cost is 30 to 40 per cent higher compared with other markets.

The middle class is also not as big and the uptake of our brands was also not as big,” Deacons chief executive Muchiri Wahome told our sister publication, the East African, adding that the cost of rental space in Tanzania is $40 per square foot compared with $18 in the rest of the region.

The fact that Deacons has found the going tough in Dar es Salaam highlights the challenges of doing business in Tanzania, which is ranked fourth in the five member states in terms of the ease of doing business within the East African Community, according to the International Finance Corporation’s Ease of Doing Business report 2011.

The company said the decision to close shop was due to the high cost of doing business in Tanzania, especially the high rental charges, and the target market — the middle to upper income — being very small compared to other countries.

Tanzania’s middle class, those earning between $2 and $20 per day, makes up just 12 per cent of the total population, which is smaller compared with Kenya’s 44.9 per cent and Uganda’s 18.7 per cent of the population.

Rwanda’s middle class represents seven per cent of its population.

Dar es Salaam has only two shopping malls compared with Kenya, Uganda, and Rwanda, which are experiencing a boom in the construction of shopping malls, and hence rapid growth of the shopping mall concept.

Also, long supply chain lead times in Dar es Salaam, where it can take up to five times longer by air to clear and deliver goods compared with the rest of the region weighed in considerably, Deacons said.

The firm will be looking to have a fire-sale before it closes down by the end of February.

However, the company will have to write-off Sh20 million ($237,500) in assets and inventories.

But the firm said the Tanzanian operations will lie dormant for now as it assesses its future strategy.

Deacons holds the franchise of a number of global fashion brands in the region including Woolworths in Kenya, Mr Price in Kenya, Uganda and Rwanda, Truworths in Kenya and Tanzania, Adidas in Kenya and Identity in Kenya and Tanzania.

It also has the Life Fitness brand, the commercial fitness equipment manufacturer in its stable. The company also has its own brands 4U2 and Angelo.

Although its Tanzanian operations have been operating at a loss, Deacons expects to make profits in Kenya, and Uganda, boosting its overall profitability.