• Trading loss shoot to ZWL46 billion from ZWL36 billion in trading profit
• Operating loss of ZWL81 billion from an operating profit of ZWL38 billion
• However, it achieved an after-tax profit

Harare- In an environment dominated by informal traders benefiting from cheap clothes imports, especially from South Africa and Zambia, Edgars Stores Limited, Zimbabwe's biggest clothing retailer, has sustained profitability - boosting from ZWL934 million to ZWL32 billion, which represented a massive 3,405% jump.

However, this profitability was largely due to inflationary pressures, which increased by more than 100% in 2023 compared to the full year 2022, leading to big numbers in profitability.

This is so because in real terms, Edgars' underlying operations during the full year were less favorable, as the group recorded a trading loss, operating loss, as well as a decline in total units sold.

According to the latest financial statement, total group units sold declined by 10.8% from 2.85 million to 2.55 million compared to the same period last year. This was largely due to competition from the informal sector, especially the introduction of the group of clothes sellers known as "Runners" who offered apparel of lower quality but at half the price or even far below what Edgars Stores charged.

The hit on sales was also a result of the rapid devaluation of the local currency, which made it impossible to provide credit sales in Zimbabwe dollars, which represented less than 10% during the full year.

The group had to suspend credit sales in Zimbabwe dollars and capitalize on US dollar credit sales.

Despite finance costs for the period declining by 2.3% to ZWL20.3 billion, reflecting a reduction in lending rates to 100% as well as a switch to USD borrowing which attracted lower rates, the group recorded a trading loss of ZWL46.3 billion, from a trading profit of ZWL36.9 billion, leading to an operating loss of a record ZWL81.2 billion, from an operating profit of ZWL38.1 billion.

This largely emanated from net foreign exchange losses of ZWL34.9 billion, from exchange gains of ZWL1.1 billion, reflecting a complex trading environment infested by currency crisis and exchange rate volatility.

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Unlike embattled main competitor Truworths, the retail group has been opening new stores during this period, but the key strategic question is how to win back the middle class, particularly civil servants, who used to be a pillar of the group's sales.

Civil servants' earnings have been heavily eroded by high inflation. Due to the suspension of local currency credit sales and high interest rates, they can no longer afford apparel from the group's Edgars brand, even at the Jet stores which offer lower prices. For example, during the reporting period, a man's suit sold by Jet for $132 was available in the informal sector for only $35.

Given the poor economic environment and depressed consumer incomes, the group needs to focus on providing much cheaper clothing options targeted at civil servants and other middle-class customers.

This could involve mobilizing more USD-denominated credit sales with low interest rates. This is because in such an economic environment, pricing precedes quality.

At one point during data collection, a vest sold by Edgars for $15 was available in the informal market for only $5. Such large price differences will inevitably drive customers away from the group's stores.

The informal sector also poses a threat by quickly adapting to changing fashion trends partly due to high rates of turnover.

Though the Jet brand offers better prices compared to Edgars, more needs to be done to increase sales and win back the critical middle-class consumer segment, especially civil servants whose budgets have been squeezed by inflation.

The government has completely failed to protect formal businesses, particularly those providing apparel and groceries. Smuggling of goods through the porous borders has proven to be a major challenge for these companies to remain viable.

Making matters worse, the border agents themselves are also suffering from poverty. As a result, they are actively taking bribes to let smuggled bales of clothes and food from across the borders enter the country freely, without paying any import duties.

They are doing this in order to save their own livelihoods.

The cumulative impact of these factors has led to the economic environment becoming a total mess.

Formal businesses are struggling to compete against the influx of cheaper smuggled goods, while also contending with corrupt officials at the borders enabling this illegal trade.

The government's failure to secure the economy particularly currency woes and crack down on smuggling and bribery has severely undermined the ability of legitimate domestic industries to operate.

This breakdown of law and order, combined with the unfair competition from the informal, smuggled goods sector, has created an extremely challenging economic landscape for formal enterprises.

Urgent and decisive government intervention is needed to address the rampant smuggling, border corruption, and lack of protection for formal businesses. Otherwise, the economic environment will continue to deteriorate further, placing the survival of these legal companies who contribute immensely to national fiscus through taxes in jeopardy.

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