eBusiness Weekly
Oliver Kazunga
Clothing retailer, Truworths, is focusing on productive cost rationalisation and working capital management as sales have declined due to the firm’s suspension of local currency credit sales.
In July last year, Truworths suspended local currency credit sales citing high interest rates on Zimbabwe dollar transactions.
This followed the hiking of the bank policy rate by the Reserve Bank of Zimbabwe to 200 percent per annum from 80 percent on account to align the interest rates with the prevailing inflationary developments in the economy.
“The environment remains uncertain, in particular the sustainability of the regulated rate of 200 percent and tight ZWL liquidity.
“The business suspended ZWL credit sales from July 1, 2022 due to the high interest rates. US dollar credit is considered on a selective basis where there is assurance that the US dollar earnings are guaranteed.
“With the suspension of ZWL credit and limited US dollar credit, volumes will inevitably come down and there will have to
be focus on productive cost rationalisation
and working capital management,” said Truworths in a statement accompanying audited abridged group results for the year ended July 10, 2022.
The clothing retailer said high unemployment levels and low disposable incomes due to inflation had a negative impact on volumes sold, with customers resorting to buying product in the unregulated informal market at prices which the business could not compete against.
“Sales and profitability were adversely affected by the restrictive pricing laws which rendered products expensive in US dollar terms and relatively cheap in Zimbabwe dollar terms.
“This was further exacerbated by the widening gap between the official exchange rate and the market exchange rate,” said Truworths.
During the period under review, the firm’s credit management book grew by 207,1 percent and 90 percent of the customers were in good standing and able to buy compared to 84,8 percent in the prior year.
The allowance for credit losses as a percentage of gross debtors was 13,2 percent compared to 6,7 percent in the prior year.
Meanwhile, the Confederation of Zimbabwe Industries (CZI), which represents the manufacturing sector, in its business and economic intelligence report for the third quarter ended September 30, 2022 said: “The increase in interest rates by such a huge percentage point (from 80 percent to 200 percent) which was to be applicable to existing loan agreements created a shock in the economy in terms of price adjustments by firms that had borrowed as they needed to pass on the increase to consumers to avoid losses.
“Thus, there was an inflationary shock in the initial phase.”
However, the industrial representative body said, an interest rate of 200 percent compounded monthly effectively eliminated ZWL$ borrowing, as businesses could not afford such high borrowing costs.
“Thus, while speculative borrowing was reduced (which also helped contain the growth of money supply), the policy virtually eliminated borrowing in local currency as a way of finance and reduced industry expansion prospects,” said CZI.
