eBusiness Weekly
Nelson Gahadza
Edgars Store Limited says cost containment and refocusing the business will remain to priority in an uncertain operating environment that has seen cost pressures threaten viability.
Edgars’ main business thrust is clothing retailing through Edgars and the Jet Chain. The clothing retailer is among the many businesses whose models relied mainly on credit sales.
However, these businesses are abandoning offering ZWL credit facilities as they seek to cushion against balance sheet erosion and ultimate business failure due to an inflationary environment and high-interest rates.
Current trading environment is characterised by exchange rate volatility which has seen the rapid depreciation of the ZimDollar against the US Dollar, resulting in price increases and erosion of disposable incomes. Edgars said cost containment remains a focus area so as to ensure the long-term viability of the business.
“The recovery of the business is premised on the back of improved access to foreign currency through domestic sales to cover import requirements, a stable exchange rate and slower inflation,” said Thembinkosi Sibanda, the company’s chairman in the 2022 Annual Report.
On the currency front, Sibanda said the environment has remained turbid, marked by the sharp depreciation of the local currency.
“Some measure of macro-economic instability has been noticed with an increase in the cost of basic commodities. The authorities need to step in and implement various measures to help stabilise the foreign exchange market and tame inflation,” he said.
The Group seeks to expand its geographic footprint through the opening of new stores in strategic locations.
Sibanda said smart merchandise procurement and optimal inventory planning remain key focus areas to ensure that target margins are achieved without compromising the merchandise quality.
“We will continue to transform our customer experience through updating our stores to world-class standards, offering widened merchandise ranges at affordable prices and flexible credit terms,” he said.
Notwithstanding the challenges in the operating environment, the Group managed to close the year with an improved revenue of $35,9 billion which is 51,7 percent up from that achieved in 2022 of $23,7 billion.
The growth in real terms according to Sibanda is attributed to volume recovery, replacement cost-based pricing, ongoing cost management as well as initiatives implemented to ensure fresher stock availability in stores, regardless of the supply chain challenges.
Profit before tax declined 5,7 percent to $1,9 billion from the prior period of $2,0 billion while profit for the year was weighed down by higher finance costs emanating from the revision of the minimum lending rates to 200 percent as promulgated by the Reserve Bank of Zimbabwe.
The result was the 117 percent finance costs growth to$4,3 billion, on a prior year of $1,9 billion.
“The business was not able to recover these costs from our customers. Unlike FMCG, with specialty retail that Edgars is in, merchandise has to be ordered and paid for 6 months before it is received.
“Further to that, merchandise is then sold on a 6-month basis and clearly interest rates as alluded to above are not suitable for this type of business,” said Sibanda.
For the 2022 financial year, total Group units sold increased by 13,1 percent from 2,4 million to 2,7 million compared to the same period last year.
Sibanda said trading in foreign currency since April 2020 has allowed retail chains to improve stock assortments, which in turn has increased traffic in stores.
“While a sizable portion of our cash sales are in foreign currency, we believe that this proportion can be increased through favourable and consistent application of regulatory policies around trading in foreign currency,” said Sibanda.
Total retail merchandise revenue amounted to $26,2 billion representing a 36,8 percent increase from prior year.
