HomeBusiness DigestClothes retailers stop credit terms

Clothes retailers stop credit terms

Jesilyn Dendere

ZIMBABWEANS can no longer buy clothes on credit terms.

Most department stores have stopped offering higher purchase terms

after government’s directive that they reduce their margins to 50%.

The stores said it does not make sense to offer credit at margins of 50% because of inflation and increased overheads.

Workers in the credit departments will have to be reassigned or retrenched altogether.

Lawrence Mabhiza, a director at Truworths which also owns Topics, said the company had suspended credit sales because it was not viable under the pricing formula implemented by government.

“We have suspended all account sales, we are not accepting them,” said Mabhiza.

Retail shops are not allowed to apply replacement costs in their pricing systems, making it impossible to restock without fresh capital injections.

To restock the companies now have to rely on bank loans which they get at rates of between 450% and 550%.

Suppliers are also demanding cash.

“Don’t you know what is happening on the market,” Mabhiza said when asked why they had stopped all account sales.

Truworths and Edgars stopped their credit facilities in September.

Mabhiza said revenue from credit purchase was being eroded by inflation by the time the installments are settled.

Although most retail outlets have not made public their losses during the price blitz, analysts say it was almost certain that listed companies like Edgars and Truworths will declare huge losses in their year-end results. Already the impact of the crackdown is apparent from the emptiness of the shops.

A survey by businessdigest this week revealed that although most retail outlets are re-stocking they are still unable to meet the demand. Queues have been a common sight at Topics and Edgars as people scramble to buy at controlled prices.

Number 1 Stores branches which cater for the lower end of the market are almost empty. Express, which is owned by Edgars, has limited stocks.

Edgars has also closed of its non-profitable branches to reduce costs. The company is still facing viability problems despite the recent price reviews.

Government has also failed to deliver on its promises to help the company. In September government met with Edgars management and promised to assist the company to continue with operations.

“We explained that the group was in the country for the long haul, and that there was no other agenda besides business. We discussed viability problems and encouraged to continue engaging relevant regulatory authorities for the resolution of this problem,” said Edgars managing director Raymond Mlotshwa.

The rescue package was supposed to come from the Ministry of Industry and International Trade but until now Edgars has not received anything from government.

Source at Edgars said the company has made plans to close 19 branches.

Mlotshwa however denied the company would close the branches permanently. He said only four Express branches will be closed permanently.

“In the Express chain, seven stores have been closed temporarily and four are closing permanently. No Edgars chain branch has closed,” Mlotshwa said.

Businessdigest understands that there has been no written agreement between government and Edgars as negotiations are still in the process. The parties are said to be failing to reach a consensus on the margin that is supposed to be the mark-up profit.

The government had initially said the group should operate at 28% a margin a figure which Edgars said was too low for the company to operate profitably. The company then tabled a proposal for a 60% mark-up.

Government then allowed Edgars to trade at 73% on condition that the retailer would not close any shops.

Government however reversed the decision demanding that the group trades at 28% because its was comparing Edgars to Power Sales.

“The overall impact is that our business has become much smaller than before. However we remain hopeful we will survive the short term,” said Mlotshwa.

“Should viable margins be agreed, it should take six months to a year to return to normal trading. That is how long the supply chain is in the footwear and clothing business in Zimbabwe.”

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