- The company has replaced the CEO, CFO
- The outgoing CEO, faced numerous challenges including high inflation, currency depreciation, forex deficits
- Edgars faces intensified competition from the informal sector, which poses a significant threat due to its agility and lower prices
Harare- As the popular saying goes, a soldier's true worth is often unseen during times of peace within a country. It is only when a devastating attack disrupts the tranquility and threatens human well-being that the soldier's significance becomes apparent. In such critical moments, the soldier demonstrates their training and reveals their true value. A similar dynamic can be observed in the realm of business. The influence of a chief executive officer or leadership on a company's performance is challenging to gauge when economic factors such as currency stability, inflation, exchange rates, and foreign currency availability dominate the landscape
When circumstances deviate from stability and various challenges arise, such as high inflation, intense competition, shortages of foreign currency, and currency instability, the role of a CEO becomes pivotal.
It is during these trying times that the CEO's experience and ability to communicate effectively come into play. They must address the pressing challenges head-on and navigate the company through turbulent waters, ensuring its survival and success.
Edgars Stores Limited, the largest clothing retailer, has undergone a significant leadership restructuring. As of October 31, 2023, both the CEO and CFO have been replaced, despite having served in their positions for only three years. This change in leadership comes in response to a disappointing performance during the first half of the year, leading up to the full year 2024, where the company presented financial reports that appeared to manipulate figures from previous periods (in historical terms). Unfortunately, even with these adjustments, the company still experienced losses, highlighting the significant challenges it is currently facing. These challenges ultimately led to the decision to replace the top executives. It is important to note that the previous CEO and CFO assumed their roles during an exceptionally difficult period, which included the onset of the COVID-19 pandemic in 2020, escalating geopolitical tensions in 2022, and the ongoing economic decline in Zimbabwe since 2019. Edgars operates more than two dozen branches, including 25 Jet Stores, the Club micro-finance unit, and the Carousel garment manufacturing factory located in Bulawayo.
When the duo assumed their leadership roles, Zimbabwe was grappling with multiple challenges. The country was in the midst of the COVID-19 pandemic, experiencing exceptionally high inflation rates that surpassed 500%. The Zimbabwean currency faced significant depreciation, with the Zimbabwe dollar's value declining by approximately 80% in 2020 alone. In May 2023, the currency reached a record low, surpassing a depreciation rate of 90%.
Adding to the difficulties, foreign currency availability was scarce, and disbursements through the auction market, which was overvalued, took up to eight weeks to settle. The persistent inflation eroded customers' earnings significantly, exacerbating the economic hardships they faced. It was against this backdrop of economic turmoil that Tjeludo Ndlovu, the outgoing CEO, took the helm of Edgars Stores Limited.
During Ndlovu's tenure, Edgars Stores managed to achieve profits after tax in 2022 and the latest full-year of 2023. However, these profits were characterized by the lowest margins witnessed in over a decade. The company faced significant challenges, including record-high interest rates that directly impacted credit sales, which had traditionally been the backbone of Edgars' earnings. The government implemented overnight inflation of interest rates to 200%, gradually reducing them to 150%. These elevated rates made borrowing costly, thereby affecting both the company's top-line and bottom-line.
To address the situation, Ndlovu suspended Zimbabwe dollar borrowings, which impacted sales, and instead resorted to borrowing in US dollars. However, this approach did not cater to civil servants who are primarily paid in Zimbabwe dollars. Historically, credit sales had accounted for as much as 75% of Edgars' total sales. However, when Ndlovu assumed leadership, these sales had declined to 40%, after recovering from a low of 25% in the previous quarter.
Amidst the dissatisfaction with the modest profits achieved, the majority shareholder of Edgars Stores decided to take action. In response, they appointed Sevious Mushosho as the new CEO. Mushosho is a former executive of SSCG, and his appointment reflects the shareholder's desire for a change in leadership to address the company's financial performance and strategic direction. The hope is that Mushosho's experience and expertise will bring fresh perspectives and initiatives that can steer Edgars towards improved profitability and sustainable growth.
However, Mushosho steps into a more challenging era for Edgars, as the company faces heightened competition from the informal sector. This sector, known for its agility and ability to keep up with the latest fashion trends, poses a significant threat to Edgars. The informal sector often operates with fewer employees and can offer lower prices, as they may evade taxes, giving them a competitive advantage in the market.
In the face of intense competition from the informal sector, it is imperative to devise strategies that set it apart from its competitors and retain its customer base. Mushosho, should play a crucial role in leading this effort. He needs to focus on identifying and leveraging unique value propositions that differentiate Edgars from the informal sector. This could involve offering exclusive product lines, personalized customer service, or creating a distinctive shopping experience that resonates with customers. Enhancing the customer experience can also be a key strategy. This may include improving in-store ambiance, streamlining checkout processes, and implementing customer loyalty programs.
The informal sector has significantly grown in Zimbabwe's economy, accounting for the majority (88%) of economic activity, while the formal sector represents only 12%. In the past, Edgars and Truworths were dominant players in the clothing sector, but their influence is waning in practical terms. A clear example of this is the substantial price difference between suits sold by Edgars and Truworths, priced up to US$200, and similar suits available at affordable prices as low as $35 in informal shops. This stark contrast underscores the enormous challenge that Mushosho faces in his current role.
Edgars is constrained by the requirement to sell at the official exchange rate, which puts it at a significant disadvantage compared to informal shops that have more flexibility in pricing and currency transactions. This further weakens Edgars' ability to compete effectively. Adding to the predicament is the issue of outdated merchandise, which fails to resonate with customers who seek the latest fashion trends.
The combination of pricing challenges, dated inventory, and the overwhelming presence of the informal sector has made it difficult for Edgars to attract and retain customers. Addressing these issues and revitalizing the company's position in the market will require strategic efforts from Mushosho and his team. They will need to devise innovative strategies to overcome pricing constraints, refresh the merchandise assortment, and identify a distinct target market that Edgars can effectively serve. Only by undertaking such measures can Edgars hope to regain relevance and competitiveness in the evolving retail landscape.
The regulatory limitations that require them to price products at the formal exchange rate continue to hinder competitiveness. Informal traders, who offer appealing products at more affordable prices, have an advantage in the market. In an economy like Zimbabwe, where a majority of the population survives on minimal daily income, affordability often takes precedence over quality, presenting challenges for Edgars.
The shift in consumer behaviour is evident as civil servants, who were once a significant credit customer group for Edgars, have increasingly abandoned the stores. This trend is particularly notable among poorly paid teachers.
To effectively drive business and attract customers, Edgars may need to adopt strategies similar to OK Zimbabwe's Dollar Deals promotion. Implementing US Dollar promotions could help generate interest and enhance the company's competitiveness in the market.
Engaging with the government regarding pricing mechanisms is crucial. Addressing the impact of the auction market rate on product accessibility is necessary for Edgars' viability. The company faces a difficult choice between strictly adhering to regulations, potentially leading to losses and even the risk of going out of business, or exploring alternative approaches to ensure sustainability. Finding a balance between regulatory compliance, affordability, and profitability is essential for Edgars' long-term success. By pursuing a dialogue with the government and considering innovative strategies, Edgars can navigate the challenges and strengthen its position in the market.
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