OK Zimbabwe treading in choppy waters . . . Closes five branches

31 Jan, 2025 - 00:01 0 Views
OK Zimbabwe treading in choppy waters . . . Closes five branches OK Zimbabwe

Golden Sibanda

The country’s biggest retailer by store numbers, OK Zimbabwe, has plunged into choppy waters, forcing the 83-year old retail chain to immediately shutdown five outlets across the country citing a tough trading environment, which critics, however, argue is only one of several issues bedevilling the group.

Well-placed sources claim a bloated management, comprising at least nine directors and more than 30 senior executives, who each drive the latest top of the range vehicles and draw huge perks monthly, were part of the scourge weighing down the retail giant.

Questions have also been raised about some of the decisions taken by the group’s management, including multiple land acquisitions and dividends declared, which tied up or misallocated cash, over the past few years, decisions observers opine should have been deferred to preserve resources at a time the economy was going through some turbulence. At the heart of the group’s current troubles is its inability to restock, with several of the retailer’s outlets currently characterised by empty shelves and virtually out of all food products, with suppliers reportedly unwilling to provide goods in local currency and on credit terms. OK is reportedly battling to clear US$17 million and ZiG537 million in outstanding accounts to suppliers, some of whom have allegedly pounced on part payments meant to unlock fresh supplies and refused to give new orders.

The Zimbabwe Stock Exchange listed group communicated its plans to cut the headcount, as the financial crisis deepens, via an internal memo, indicating it will close down five of its outlets namely Robson Manyika, Glen Norah, Kuwadzana Express and Mbare, all in Harare, as well as Chitungwiza Town Centre and Entumbane (Bulawayo) branches while a sixth one is scheduled to close its doors to the public in March this year. Hundreds of employees at the targeted branches will lose their jobs, after the management indicated retrenchments would immediately follow the closure of the branches, beginning March 31, 2025, apparently targeting mostly low-level workers.

The retrenched employees have been promised severance pay of just one month salary for every year served, notice pay equal to three months basic salary and payment of outstanding leave balance on the day of termination. It is not yet clear whether the affected workers have accepted the proposed retrenchment package, but OK also said the proposed package would be paid within the stipulated time frame, subject to availability of funding.

The branches to be closed, sources said, will include those that have been making losses and the ones operating from rented premises. OK operates 72 branches across the country.

Contacted for comment yesterday chief executive, Maxen Karombo, requested questions via email, but had not responded late last night while he was no longer answering his phone.

But one executive who spoke to Business Weekly anonymously, blamed the giant retailer’s troubles on currency and economic issues besetting the US dollar dominated economy.

The executive said the company’s troubles worsened when the retailer received goods from several suppliers on credit and in US dollars, but is now struggling to clear the credit facilities amid crippling cashflow challenges.

According to the source, OK received the goods at the height of Zimbabwe’s currency crisis last year, which resulted in the relaunch of the domestic currency and the introduction of the Zimbabwe Gold (ZiG) in April, which has since stabilised, but has not brought any improvement in the retailer’s fortunes.

Limited access to foreign currency on the formal willing-buyer-willing seller interbank market has been the final nail, making it difficult for OK Zimbabwe to restock at a time the once thriving retailer is facing cashflow issues amid the group’s inability to restock.

All this comes as OK, like any other formal retailer in Zimbabwe, is facing stiff competition from informal sector traders, who are now preferred by suppliers and are supplied at discounted prices, because they pay US dollar cash.

The informal traders also enjoy significant advantages in that they are cheaper because they do not pay any taxes or comply with the litany of regulatory obligations that virtually all formal retailers or businesses must observe.

The Confederation of Zimbabwe Retailers (CZR) said this week it was alarmed by the closure of formal retail and wholesale businesses and urged President Mnangagwa to intervene to save the sector from demise.

CZR president, Denford Mutashu, said the continued closure of formal retail and wholesale businesses, was a consequence of the tough economic environment that has resulted in the formalised sector players facing stiff competition from informal businesses who do not pay any taxes.

“The Confederation of Zimbabwe Retailers is deeply concerned about the continued closure of formal retail and wholesale businesses, a direct consequence of the prevailing turbulent economic environment that has consistently failed to support formalised sector players,” Mutashu said.

Other retailers and wholesale businesses that have downsized include N Richards Group and Spar Zimbabwe, while Choppies Zimbabwe has exited the market.

Leading wholesaler, Mahommed Mussa, has significantly reduced its shop space by 60 percent, highlighting the growing crisis in the formal trading business.

Another internal source, however, argued that the tough environment aside, OK’s bloated management was weighing heavily on its already tight cashflows, pointing out that directors and executives draw more than US$200 000 monthly in salaries, allowances and other perks, which would be enough to buy stock for several OK group outlets.

“How can a company survive with more than nine directors, and more than 30 executives that earn huge salaries and drive expensive top of the range vehicles; our biggest competitor (Pick n Pay does not have such a structure).

The directorship includes the chief executive, Karombo, chief finance officer Phil Mushosho, supply chain director Knox Mapaya, corporate services director Margret Manyuru, human resource director Takudzwa Muparika, group treasurer Brian Muradzikwa, operations director Upenyu Gumbo, marketing director one S Merk, ICT director one Mundira and corporate services director identified as R Bamu.

“Just imagine how much this (bloated management) costs the organisation in terms of just the fuel bill every month, the highly placed source said on condition of anonymity.

Sources also alleged that other corporate governance deficiencies were responsible for the company’s challenges, including the issue of two very senior directors who operate or are associated with Spar retail businesses, a direct competitor of OK Zimbabwe.

It is alleged that one of the directors actually has an arrangement with OK Mart, a division of OK Zimbabwe, to get goods on credit under a 90 day credit facility, raising eyebrows about the group’s adherence and respect for corporate governance practices critical for the success of any business, especially listed entities like OK.

Commenting on OKs challenges, some market analysts questioned the group’s decision in March 2022, to declare a US dollar dividend of 0,13 US cents per share, totaling approximately US$1,7 million (excluding payments made in Zimbabwe dollars).

This was followed by another dividend in March 2023, amounting to 0,15 US cents per share, which included a 0,13 US cents interim dividend and a 0,02 US cents final dividend, totaling around US$2 million.

“Just five months later, in August 2023, the company borrowed US$5 million at an interest rate of 7,5 percent per annum, with a three-year repayment term. From a resource allocation standpoint, this decision raised concerns,” the analyst noted.

When factoring in the total dividend paid in ZWL (Zimbabwe dollars) in 2022 alongside the US$0,13 USD dividend, the total payout over these two years is roughly equivalent to the US$5 million borrowed in August 2023.

“Of course, they probably wanted money for working capital expenditures, but a more prudent approach would have been to suspend these dividends and instead utilise internally generated resources at zero interest cost”.

To validate the earlier concerns about the imprudence of declaring a dividend while increasing borrowing at 7,5 percent per annum, the company skipped its dividend in 2024, citing the need to restore working capital.

“This shift suggested that advice was likely given to prioritise cost-cutting. However, in my opinion, this decision came too late to effectively address the underlying issues,” the analysts added.

The company has also tied up capital over the last few years, which could have come in handy now, after buying land to build its own stores across the country including in Mutoko, Southly Park (Harare), Guruve, Kadoma and Gweru.

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