Kudzanai Sharara and Fradreck Gorwe
Leading Zimbabwean clothing retailer, Edgars Stores Limited, is actively pursuing growth in exports to earn foreign currency to finance acquisition of factory inputs and merchandise offerings in its retail chains, group managing director Linda Masterson has said.
Speaking at an analysts’ briefing this week, Masterson said although the group’s manufacturing business, Carousel, is very small in the scheme of things within the group, it plays a very important role in providing product to outlets and also contributing the much needed export earnings.
Although in 2018, exports only contributed 0,5 percent to total sales, Masterson hopes to grow its contribution quite substantially in 2019.
She said currently, Carousel is exporting into the South African market but is looking for other markets across the region and has already had enquiries from Botswana.
“We have an aggressive export drive in progress to ease forex pressures. Our product is doing very well, the merchandise that we sold to South Africa is so far doing very good,” said Masterson.
Masterson said the currency distortions which have since led to the liberalisation of the exchange rate, have made Zimbabwean products very competitive on the export market.
“Our customers are very happy with the price, they are happy with the turnaround and they are happy with the quality, and they are happy with the delivery, so all in all, it’s a success. Now we need to grow the numbers.
“One of the things that have happened, the distortions in the economy, since October, is that we have become more competitive as a nation for exports. Our wages were much, much higher in the region and that has been somewhat corrected by the distortions that we have had in the market,” said Masterson.
Since the introduction of bond notes in 2016, Zimbabwe had been using an exchange rate that puts the surrogacy currency at par with the US dollar, making its operating costs including wages much higher than those prevailing in the region.
The liberalisation of the foreign currency market, amid close to static wages has meant wages are now significantly lower than those prevailing prior to the new measures, and Masterson believes local businesses can capitalise on this.
“So paradoxically we are in a much better position as a country to export than it has been for some time because of a lot of those costs that were making us uncompetitive have actually gone down in real terms,” said Masterson.
When the peak becomes trough
The festive season is naturally a period when retailers record brisk business, but this was not to be for Edgars as the retailer’s sales tumbled as a result of the new monetary measures that were introduced by the central bank on the first of October.
The sweeping changes, which included the separation of bank accounts into local RTGS FCA accounts and FCA nostro accounts, coupled with the 2 percent intermediated tax, resulted in the exchange rate tumbling and with it the purchasing power of the consumers.
Edgars also reacted through mark-up action to protect stock-outs after fears of a return to hyperinflation left customers frantically seeking value. Though merchandise prices did not go up by as much as some in the market, it still had the effect of dampening demand and reducing volumes.
Edgars and Jet chain unit sales for the last quarter declined by 37 percent and 33 percent, respectively. Being the strongest quarter, (including the festive season) this had a negative impact on annual volumes.
For the Edgars Chain, unit sold for the year were 1,6 million (2017:1,9 million), a decrease of 16 percent, while for the Jet Chain, units sold for the year were 2.3 million (2017:2,5 million), a decrease of 8 percent.
FY2018 Financial Performance
The Group realised a remarkable growth across the board with profit after tax improving by 114 percent to RTGS$8,5 million in 2018 from RTGS$3,98 million prior year comparative.
According to Group managing Director Linda Masterson, improvement in profitability is the company’s interesting story given background constraints on the company’s operations.
The 114 percent profit after tax (PAT) growth was attributed to increased margins to 46 percent from 43 percent in 2017.
Credit can also be given to reactive and proactive measures that the company adopted in the face of a tense operating environment, said Masterson
Local spending power significantly eroded
Among the challenges faced by the retail giant were foreign currency shortages which dampened sourcing of product lines which could not be sourced locally such as cosmetics, shoes, and lingerie.
As one of the proactive measures, Edgars harnessed mark-up action to stock-outs in October when suspicion of a hyperinflation “left customers frantically seeking value”.
Despite Edgars’ prices not going up by as much as some in the market, the move still had the effect of dampening demand and reducing volumes as evidenced by a decline in volumes by 37 percent for Edgars Chain and 33 percent for Jet Chain in the establishment’s highly anticipated last quarter (which includes the festive season.)
Notwithstanding the above constraints, retail operations recorded higher turnovers than the comparative prior year.
Edgars Chain did well recording turnover of $45,7 million in the period under review which is a 16 percent increase from $39,6 million prior year comparative.
The number of units sold for the year under review, however, decreased by 16 percent to 1,6 million from 1,9 million in 2017.
Jet Chain’s total sales for the year 2018 improved by 27 percent to $30,5 million from $24,1 million in the prior year comparative.
Total units sold for the chain however, decreased by 8 percent to 2,3 million from the previous 2,5 million.
Microfinance business’ revenue increased from $0,1 million (four months trading) to $1,6 million for full-year trading. Profits for the segment rose to $0,7 million from a $0,1 million loss in the preceding year.
Edgars’ gearing (debt related to equity capital), remained healthy at 0,20 percent from 0,15 percent in 2017 as the company managed to clear all its foreign liabilities during the second half of the year.
Overall, Edgars stores Limited’s growth was hinged on sound credit management as the company had a clean debtors’ book according to Masterson.
Debtors were very well managed throughout the year and the various debtors’ books are all clean. They are very clean with too many paid up accounts. Total active accounts at the end of December numbered 151 552, which was 9,5 percent down on 2017.
Outlook looks positive
Masterson said she is positive of the expected outcome in 2019.
“My own view is that we will start to see some stability, I think we are not yet at a stage where the foreign currency market has stabilised, but I do expect it will, especially with the tobacco marketing season helping slightly.
‘‘So my own view is that we will see some stability, I think we will see some downward pressure of prices,” said Masterson.
Going forward, the company set a target of 40 percent profit-after-tax growth and a turnover growth of 35 percent. A gearing ratio of 30 percent is also on the cards.
The general outlook is premised on a short and long term basis. In the short term the company banks on the imminent salary increases. In the long term the company expect growth driven by fiscal discipline and reforms that are likely to create foreign investment and job creation. Working with local suppliers to develop and improve quality and fashionability also forms part of the strategy.
Clean debtors book
The dent on sales was also evident in the decline in the average number of active accounts to 1,735 accounts against 1,894 accounts prior year comparative.
Total accounts opened for the period also declined to 20,145 accounts (F2017: 21,455), representing a 6 percent decline.
On a positive note, customers converted their inability to buy, to the payment of instalments, resulting in a “clean debtors book.”