Zim consumers prefer bargains: Report

HARARE - Zimbabwean consumers prefer to buy clothes from flea markets than stores such as Edgars and Truworths as high interests’ rates and liquidity challenges in the country continue to erode their low disposable incomes, a recent report has shown.

Lynton Edwards Stockbrokers (Les) reported that the decline in sales from traditional fashion stores can be supported by the seemingly booming business for Zimbabwean boutiques and flea markets where they sale mostly low-cost items.

“Most buildings in the central business district are being renovated to accommodate these boutiques, an indication that it is not the clothing retail business per se that has a problem but rather a consumer preference for cheaper articles of clothing,” said Les.

In compiling the report Les used Value Added Tax (Vat) as a measure of consumption spending patterns in the country.

Market experts say while Vat is not a perfect measure of consumption spending within Zimbabwe, and certainly excludes the informal sector, it is a satisfactory method for benchmarking retail operations.

In the first half of 2011 total Vat collected by government grew by over 44 percent when compared with the same period in 2010.

In the first half of 2012 Vat revenue hardly rose above the 2011 figure, a symptom of slowing economic growth, liquidity constraints, and a number of other factors which saw the economy fall on hard times.

Figures released by Truworths and Edgars stores recently revealed a decline in sales and profitability, suggesting consumers’ preference for low-cost items, a conscious decision made on the part of customers to save their pennies — a consumer response to a slow-down in the economy.

“A simple comparison of Truworths’ sales with total Vat collections shows that Truworths’ relative market share has declined, while Edgars’ has remained static,” read part of the report.

In the first half of 2012 Edgars turnover grew by 39 percent over the comparable period in 2011 in contrast Truworths managed a five percent growth.

“Edgars operates from 37 stores between its two brands, while Truworths’ three brands occupy 62 stores meaning that on a twelve months comparable basis, Edgars is able to generate a whopping four times the amount of sales per outlet.

“Truworths does have a budget brand with 21 stores, which affects this number — without them, Truworths is still only turning over less than a third of what Edgars is capable of,” said Les.

At the top-tier Truworths branded stores, sales amount to  $1 675 while in their 2011 financial year Edgars’ top brand achieved sales of $2 264. Not only does Edgars operate from fewer, larger stores, but it is able to generate greater sales volumes in the space they utilise.

The report noted that Truworths is spending roughly $11,80 per square meter (sqm) in occupancy costs each month, or $141,50 per/sqm over the course of the year. The company also pays $340,40 each year on employment and other operating costs.

After deducting cost of sales from revenue, the company is left with just less than $100 in profit per square metre, before considering non-cash charges, trade receivable costs, interest and taxation.

“In order to grow its profitability the company will attempt to grow sales and cut back on costs. Already since period end distribution costs, advertising and marketing costs, and trade receivable costs have been reduced, resulting in significant savings,” said Les.

While sales at Truworths’ two premium brands declined, its budget store actually registered an impressive 18 percent increase in like-for-like sales in their 2012 financial year.

Edgars does not have a directly comparable brand, but its Jet stores outstripped Edgars stores in terms of sales growth over the first half of 2012.

Truworths had 70 724 active accounts at the end of the first half of the year, while Edgars closed the period with 169 717 accounts of which 74 percent (125 591) were active.

Provisions for doubtful debt at Edgars stand at 2 percent compared to Truworths’ 4,5 percent (as a percentage of trade receivables), and while Edgars believes their provisions will adequately cover bad debts in the full year, Truworths’ bad debts as a percentage of trade receivables amounted to 4,1 percent.

The peak performance for retailers is the December period when civil servants are traditionally paid a bonus and the festive season drives sales. Last year civil servants were paid late and this affected the performance of retailers in their full-year financials.

Government has this year endeavoured to ensure that civil servants are paid their bonuses in full, and on time.

“However, retailers still face a challenge in attracting customers to their stores as micro-finance institutions within the country flourish, and as individual consumers pay large amounts of their disposable incomes as interest each month.

“The problem is compounded by the absence of a unitary credit bureau within the country, which can adequately share information between credit retailers. The development of a bureau in which all stakeholders co-operate will be important for the longevity of the  industry as a whole,” warned Les. - John Kachembere

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