Small and medium-sized businesses have been warned not to over-extend themselves and risk going under following the collapse of a major retail operator in the UAE.
Earlier this week, Arabian Business revealed how Gulf Greetings General Trading emailed suppliers last Friday saying it had closed down operations with ‘immediate effect’. The shock announcement has hit the company’s suppliers hard with some claiming they are owed ‘millions’.
The closure of the retail group, which owned The Toy Store and ran Hallmark in the Gulf, follows on from the closure of Sprii UAE, an online shopping platform, which also left suppliers out of pocket albeit to smaller amounts. In Sprii’s case, a liquidator has been appointed, though those owed money don’t expect much back.
One supplier hit by the sudden closure of Gulf Greetings said: “We are all saying we have zero chance of getting anything back because the company has no assets and huge debts.
“It all goes back to the same thing, who has the muscle when chasing debts. I think suppliers need help here, we need some sort of protection, and otherwise the same thing will keep happening.”
Following the news, Scott Cairns, managing director of Creation Business Consultants, advised SMEs to be careful not to become over-extended with those they trade with, even though he admitted that can be difficult especially after 2020.
“Protection for suppliers in the UAE has been and always will be a difficult line to walk,” he said. “Where once conservative businesses would enforce strict credit terms, prepaid cheques, upfront deposits, penalties and cancellation of accounts for violations, 2020 has seen a lot of these ‘hard and fast’ rules somewhat relaxed.
“Those companies that, in an effort to continue trading as well as possible, have loosened their credit control policies might well regret their decision in the future.
“The issuance of additional changes to the bankruptcy laws has helped businesses who may attempt to trade out of trouble, but there is very little recourse to those that have extended further credit to a company that eventually goes under.”
Scott Cairns, MD of Creation Business Consultants
While SMEs make up 99 percent of the UAE’s economy, smaller businesses felt they were often in a David and Goliath situation when chasing money owed, said the supplier who is facing losses of AED70,000 with Gulf Greetings. Other suppliers are said to be owed as much as AED7 million.
Cairns agreed SMEs could face a challenge when dealing with bigger chains and companies.
He said: “The power in the relationship always lies with the stronger party, therefore they can dictate terms. It is not uncommon for some large multi-nationals to apply a “take it or leave it” approach to their three months credit terms, leaving SMEs to carry the cash outlay themselves.
“Businesses could, to encourage positive reinforcement offer a discount on their invoicing (after appropriately pricing it in initially) to those clients that pay within a specified time, rather than a punitive approach for tardy payers.”
In a column for Arabian Business, Kellie Whitehead, founding partner and Jennifer Blandos, managing partner, of Female Fusion Network, said the recent closures had hit female business owners hard.
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Jennifer Blandos (left) and Kellie Whitehead from Female Fusion Network
“Over 90 percent of the UAE economy is made of SMEs with much talk and focus on those who, on average, turn over the AED2 million mark. We represent a swathe of growing, viable businesswomen who whilst falling under that threshold, still face the expense of set-up and fees, VAT payments, premises rent, staffing costs and retention and associated labour costs,” they wrote.
“Again the price of ‘doing business’, but there is no doubt that the cost of these closures is of detriment to female entrepreneurs who, despite challenges faced by all businesses throughout unprecedented times, will be hit hardest this month.”
It isn’t just suppliers to the retail sector who have been affected by collapses. Sub-contractors and suppliers dealing with Arabtec face “significant impact” on their businesses amid the ongoing liquidation the construction giant.
Arabian Business earlier on Wednesday reported how the construction major is considering auction sales of some of its subsidiaries to achieve best value for creditors owed as its liquidation process continues.
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