eBusiness Weekly
Enacy Mapakame
Prevailing foreign currency shortages in the country are expected to put pressure on retail companies’ ability to import for re-stocking as well as acquiring raw materials.
This comes as another challenge to an already constrained industry due to the economic volatility, which is characterised by inflationary pressures that have eroded consumer spend as well as erratic power supplies, increasing firms’ overheads.
While the retail sector tends to adapt easily to a changing economic environment, locally a significant amount of their merchandise comprise of imports and the current foreign currency shortages are not consistent with that model.
A good product mix for the retail sector with an alignment towards locally produced goods would pay dividend under such circumstances.
“The retail sector has shown better ability to cope with inflation by being able to adjust and adapt to pricing to fast pace changes in the environment,” said stock brokers EF Securities in their 2019 ZSE Review and 2020 Outlook.
For retailers like OK Zimbabwe, EFE maintains this has been true of the group as it saw a faster growth in revenues relative to cost lines.
“Performance, however, may be dampened by the ability to stock imported products as the country continues to contend with scarce foreign currency,” said EFE.
Volumes for OK are seen further declining although this will be made up for with price adjustments.
For quick service restaurant group, Simbisa, the group still has to battle the economic challenges in its key market, Zimbabwe key among them with limited foreign currency and high inflation which reduces consumer spend.
However, Government gave players in the tourism and leisure industry green card to accept payments in hard currency giving the group another channel to source foreign currency in addition to its regional expansion projects.
While industrial giant, Innscor, has had a low import content but bad weather conditions have had a knock-on effect on the group and increasing its import dependency.
Said EFE: “The shortage of hard currency will have an impact on performance going forward, we believe the group has well focused teams that should be able to weather the storms.
“Though consumer disposable incomes have been under pressure, FMCG’s pricing has shown determined resilience to match with which in a way enables the groups to contend with currency depreciation.”
Zimbabwe has been reeling under economic pressures that were also compounded by currency reforms effected during the year 2019 such as move from multi-currency system to mono-currency.
Businesses have continued to battle inflation as the economic challenges continue to mount, threatening the viability of businesses.
Foreign currency shortages have remained at the core of these challenges, and this has seen businesses failing to acquire much for importation of raw materials or meet foreign obligations.
Clothing retailers Edgars and Truworths have not been spared from the challenges, which have seen consumer spend significantly reduce.
Both clothing retailers have recorded declines in volumes due to waning disposable incomes.
For Edgars, units declined 17 percent in the interim to July 2019 on the back of waning disposable incomes.
The clothing industry also suffers competition from imports and second hand clothing.
With no immediate solutions in sight for the challenges bedevilling the economy, market watchers contend firms need to be more creative in their product mixes while those with foreign currency exposure are also in a better position to stand the economic volatility.
