Double trouble for listed retailers

Shakeman Mugari



RETAIL companies continue to take a battering as the government keeps a tight lid on prices resulting in shortages of basic commodities.



align=justify>For the listed retail companies government’s price crackdown has delivered a double blow. Their share prices are suffering and so are the profits.


The share prices of retail companies on the market show that the market has declared “hands off” on the counters. Stocks like OK Zimbabwe and Redstar have not moved significantly compared to the rest of the market since the launch of the price crackdown on June 25.


For instance OK Zimbabwe’s share price has only moved by 140% ($7 500 to $18 000) since June 25. Redstar’s share price has moved by only 167% during the same period. The industrial index has however grown by 1 123% over the same period.


Other retail companies like Tedco and Pelhams have not fared any better. Edgars and Truworths have not been spared either. Their share prices have remained subdued despite the bull-run on the stock market.


Other sectors have directly contributed to the crisis in the retail sector as they try to cushion themselves from inflation and price controls by demanding cash upfront.


The old reputation of a retail sector that is cash rich has disappeared as manufacturers and suppliers now demand cash on delivery.


The basic concept of retail in the past was that the supermarkets would sell the commodities before they pay for them.


This was made possible through credit terms of between seven days and 60 days on some products. Retailers would then use the credit days to hedge.


Retailers who spoke to businessdigest this week said the game plan has changed. “We now have to pay cash on almost everything that we want,” said a commercial director with a retail chain.


The effect is that the companies are always in a cash-flow crisis as they now need to have cash available when they have to restock.


The problem though is that most retail companies have not made any significant cash over the past three months because of the price controls and lack of stock.


Their volumes and margins have hit rock bottom while operational costs have skyrocketed on the back of increased power tariffs, rates and wage bills.


OK and TM the largest retail companies in Zimbabwe recently laid off some contract workers but officials said the companies are still bleeding because the current workers are being paid from reduced stock and thin margins.


Government has maintained that retailers should effect a profit margin of 20% on all commodities, a figure analysts say would force most companies to close shop.


There are also additional problems for the sector. Manufacturers and suppliers have stopped delivering goods to the shops. This means that retailers will have to cover the transport costs to collect the goods.


They are however not allowed to recover this cost component on the price of the goods. With less stock in the shops retail companies are likely to record serious losses this year.


“In the past we used to turn our stock about 14 times, now we just do about four. We are making huge losses,” said an official from TM Supermarket.


For the fast moving products like milk and other basic commodities more stock-turns mean more profit for the retail companies.


Under the new regulations retailers are not allowed to charge replacement costs.


This means that with inflation around 8 000% the companies will need to borrow every time they need to restock because of the price changes.


For companies that might have the foreign currency to import goods from South Africa the National Pricing and Incomes Commission will not allow them to use parallel market rates in their pricing models.