Enrich Stores set to bounce back
RETHABILE MOHONO
MASERU – Enrich Stores, which had to close down last year because of overwhelming debt, is set to bounce back.
ENRICH Stores is a Basotho retail chain established in 2019 and was situated at Mafafa along Kingsway. It had a fitness centre in Thetsane, Maseru but fell on hard times after experiencing financial challenges and accrued substantial debts within a short span of about two years of operating.
However, the business is on its way to resurrect through the assistance of the Lesotho National Development Corporation (LDC) The store’s new CEO Peter Morolong told this publication that as preparation for the re-opening of the store they have finalised a Special Purpose Vehicle (SPV) called ENRICH Investment (Pty) Ltd.
A Special Purpose Vehicle (SPV), also known as a Special Purpose Entity (SPE), is a subsidiary company created by a parent company for a specific purpose.
The process involves isolating financial risk by establishing a Special Purpose Vehicle (SPV) to separate assets, operations, or risks from the parent company’s balance sheet, protecting it from severe risks associated with specific ventures or projects.
SPVs are also commonly utilised in structured finance applications like asset securitisation, joint ventures, or property deals, enabling companies to pool assets, creating joint ventures, or conducting financial transactions while minimising the impact on the parent company.
The separate legal status of an SPV ensures that its obligations remain secure even in the event of the parent company facing bankruptcy, acting as a “bankruptcy-remote” entity.
Venture capitalists often utilise SPVs to consolidate capital for investing in startups, making a single investment into a business, unlike investment funds that spread investments over time.
And an SPV’s financials, including assets, liabilities, and equity, are reflected solely on its balance sheet, not on the parent company’s, emphasizing the importance for investors to review the SPV’s financials before investing.
“…there is a lot of work on the ground that we have to do; our company requires systems, processes and many more, and for long term survival we launched a local supply value chain in May, 2024 as part of preparation for re-opening,” said Morolong, adding that once everything is concluded, they will make an official announcement.
In previous interviews the then Chairperson of the ENRICH Board, Thato Damane, said ENRICH was granted a sum of M15 million by the Lesotho National Development Corporation to settle its financial obligations and bolster its business activities.
Damane revealed that, following extensive negotiations and meticulous preparations, they successfully secured an agreement with the LNDC, resulting in the initial disbursement of M15 million, which is part of the M25 million promised by the Corporation to provide much-needed assistance to the store.
“Prior to the disbursement of funds, it was imperative to streamline the board by reducing its members to a select four, enhance the count of shareholders, and conduct a site visit to the new warehouse situated at the Station,” he said, explaining that the project manager will be handling the warehouse, which measures around 200 square metres in size.
“Restructuring of the warehouse is one of the main issues that will lead to the success of Enrich. That is to say, funds without a well -defined structured warehouse, would jeopardise Enrich’s success, therefore ensuring the warehouse is in good shape is very crucial,” he said. He said the new store will be based behind 10 10 building, Up Town.
With the funds obtained, Damane said they have settled rent for Moosa Group of Companies and PEG PTY Ltd, who were both the owners of the store and gym premises.
Before the rescue package, the company’s financial obligations included a bank loan exceeding M500,000, outstanding salaries of nearly M140,000 owed to former employees, unpaid bills totalling M1.7 million to suppliers, and a tax debt of over M687,000, to name just a few.
He said that the LNDC loan will be disbursed in tranches, commencing with an initial instalment of M15 million. This amount is anticipated to alleviate the burdensome debts of the establishment, covering the exorbitant rent and the recuperation of valuable inventory.
“Our intention is to allocate the funds for rent yet, regrettably, the landlord of one of our premises has expressed their unwillingness to continue collaborating with our store. Consequently, we have secured an alternative location within town, should we fail to reach a mutual agreement,” he said.
Additionally, he emphasized that the remaining funds will be allocated towards replenishing the store’s inventory and acquiring technological solutions to safeguard against any recurrence of theft incidents, thereby ensuring the preservation of the store’s impeccable record. In response to the inquiry regarding the rehiring of former employees, the Damane expressed their intention to commence anew. They emphasized the necessity for transparency and professionalism throughout the company, from management to the recruitment of personnel.
During the previous interview with this publication, Damane highlighted the unfortunate downfall of the store, attributing it to the lamentable presence of inadequate leadership and unsatisfactory financial conduct. These concerns demand immediate attention and thorough examination as the store embarks on its journey to prosperity once more.
“Due to bad leadership and bad financial behaviour by the co-founders or brains behind Enrich, the store found itself in deep debts. Sadly, we have to reveal today that the store is closed,” he said.
He emphasized at the time of the earlier interview that the cost of rent though very high is merely a small portion of the store’s financial obstacles, as it grapples with numerous other monetary burdens demanding huge sums of money.
Since its inception, Damane said Enrich Store has consistently neglected its tax obligations, regardless of the prosperous state of its business during its initial year. “
This means we owe Revenue Services Lesotho tax returns which were never filled since the store was established,” he said adding that store also has a loan of M1 million from Standard Lesotho Bank, only half of which has been settled. “The people who came before us acquired a loan of one million maloti, which was not part of the original plan,” he said. With the one million maloti, he said, that is when the illadvised idea of a gym started.
“That is when even bigger troubles began because the gym was unable to pay its rent, therefore it relied solely from the money made by the store. “The dire financial situation also led to months of unpaid employees working without compensation for five months,” he said.
Despite initially employing 150 individuals, the store was forced to downsize to only 50 employees due to the overwhelming difficulties it faced. Consequently, not only did countless Basotho lose their jobs, but local producers who relied on the store as a market also suffered significant losses.
“About 200 different locally produced goods were sold in the store, so with the store closed, locals also lost their market,” he said.
As if it was not enough, Damane said other reasons which also posed significant challenges for this once promising establishment was lack of experience by both management and workers, incidents of staff theft, and the absence of clear regulations.
Apart from that he said the store operated without a formal business plan or proposal, merely existing as an idea in the minds of its founders, with no written documentation to guide its operations.
“One would wonder how they managed to acquire a loan at bank without a business proposal and a business plan,” he said, explaining that Enrich operated like a ‘Spaza’ shop.
He revealed that out of the 6000 shareholders, only 14 individuals are officially recognized or rather appear as shareholders at the Ministry of Trade, while the rest do not appear.
Furthermore, he also revealed that the store has never undergone any auditing procedures since its establishment, resulting in a complete absence of records or receipts to indicate the sale of goods.
Meanwhile, Damane said, the absence of documented records pertaining to previous board meetings poses yet another formidable challenge in retracing past occurrences.
“In cases where there were meetings or something was written, there are no signatures to attest that the seating did took place,” he said, complaining that nothing was ever professional about Enrich.
In addition to that, he said there were over generous seating allowances of M3 000 for board members, which further exacerbated the financial hurdles that Enrich was already grappling with.
“Although Enrich had an agreement of four sittings in a year, there were countless sittings by the board which affected the store financially,” he said emphasizing that lack of good leadership and poor corporate governance are some of the main reasons why the store faced closure.
Despite the evident challenges that arose when former Enrich CEO John Maine was suspended from his position, Enrich’s current CEO Thabang Nthako attempted to conceal the company’s issues in previous interviews.
Looking back, among other things that led to his suspension, includes the fact that he was judged to be ineffective in his managerial position and was failing to file tax returns on time to a point where the company was functioning without a tax clearance.
The memo revealing his incompetence followed the special board meeting held on March 20, 2023, where the CEO was deemed to be unqualified.
Furthermore, the irresponsibility of the CEO was demonstrated in his decisions to neglect paying rent amounting to almost half a million maloti in rented facilities where the Enrich Stores and Enrich Fitness operate from.
Ever since, then, there were clear signs that the store was going downhill, that it got to a point where former CEO wrote an open letter to Enrich management where he said he doubted the store would be sustained for even two weeks after he was removed from the managerial position.
“…I am unsure what the newly selected management and board will do about this, and how quickly they will take action to save Enrich. If Enrich closes in the next few weeks, which can be highly likely, especially in a total absence of founders, I want to make it clear that I am not liable for its closure.
“We had several challenges since inception, but we never closed because we started this from zero and did everything, made relationships with suppliers and all stakeholders. This decision may lead to Enrich closure in weeks, we don’t know what suppliers will do with a completely new management…,” he said on his open letter.
However, with the arrival of the new board members and management, anticipation rose for a transformative shift within the ailing vessel. Damane said the new team tried to acquire an overdraft from the same bank which gave the store a loan to sort out rent issues. However, the bank denied the store an overdraft.
“Instead of giving us an overdraft, the bank demanded that we settle the loan when it was clear that we are incapable of paying it,” he said.
Damane, however, said at the time that they were willing to take sell rights shares to shareholders for M2 000 each to at least make M2 million to settle rent. Rights shares also known as a rights issue, is an offer given to the extant shareholders of a company to purchase additional shares. Under this offer, the company was to provide its shareholders with securities called rights.
In the pursuit of a transformative approach, should the store emerge from its financial burdens, Damane expressed the resolute commitment of the new board.
With an astutely crafted business plan already in place, the board ardently embraces the notion of employing accomplished leaders, adorned with exceptional expertise, while embracing utmost transparency in their financial records.
ENRICH has recently advertised multiple job positions across different media channels in the past few months, but there has been no update yet on when exactly the store will re-open. Meanwhile, Peter Morolong has been introduced as the new interim Chief Executive Officer of Enrich Stores, tasked with providing guidance and leadership to ensure the store achieves exceptional success.
