- Truworths struggled with cheap imports and currency challenges, resulting in a 33% decline in traded volumes
- Despite a profit increase, Truworths' earnings are insufficient for major investments
- Intense competition from informal sellers and currency fluctuations impact Truworths and other retailers
Harare- Truworths Limited, a clothing retailer facing significant survival challenges, experienced a 33% decline in traded volumes for the fiscal year ended 9 July 2023.
However, it is important to note that the company achieved an after-tax profit of ZWL1 billion, a substantial increase from ZWL210 million (equivalent to US$70,000 based on the current exchange rate). Despite this profit growth, it is not sufficient to make a major investment.
This represents a significant downturn compared to the 9% growth achieved during the same period in 2022. Mahlangu, the company's chairperson, attributed this decline to currency instability and the influx of low-cost and counterfeit clothing through porous borders into landlocked Zimbabwe.
The emergence of informal sellers known as "Runners," who offer clothing at prices below the market average, along with the dumping of free clothing across the borders, has created intense competition for formal retailers like Truworths.
As a result, retailers are struggling to compete, as they have to cover labour, rent, and various taxes while facing significantly lower prices from informal sellers.
A suit that costs US$130 at Truworths can be purchased for just US$35 from Runners, exacerbating the uneven competition.
Currency fluctuations also contribute to poor sales. Zimbabwe's economy is highly informalized, and the use of the Zim dollar creates challenges. The formal market rate used by retailers like Truworths is lower than the prevailing informal market rate, leading to higher prices in US dollars.
Consequently, consumers prefer affordable clothing from Runners and street vendors, despite the inferior quality.
This situation is not only affecting Truworths but also other major retailers such as Edgars, OK Zimbabwe, and TM Pick n Pay.
During the reviewed period, unit sales declined by 33% due to the suspension of credit sales in ZWL. Truworths attempted to substitute ZWL credit sales with USD credit sales in February 2023, but this strategy was unsuccessful, as the company's core customers, civil servants, are paid in local currency.
Cash sales, however, increased from 66% to 82%, while credit sales decreased by approximately 50%, dropping from 34% to 18%.
Despite the significant increase in cash sales, the resulting after-tax profit was meagre.
Truworths should consider the advantages of listing on the VFEX (Victoria Falls Stock Exchange) instead of remaining on the ZSE (Zimbabwe Stock Exchange).
Additionally, the company needs to explore alternative revenue channels to offset the losses in clothing sales.
Equity Axis strongly urges the government to monitor the borders, actively combat corruption related to border bribes, and implement practical measures rather than mere theoretical solutions.
The excessive control of the exchange rate is negatively impacting sales for companies that contribute taxes to the government.
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