Retail sector wallows in the doldrums

THE retail sector in Zimbabwe is stuttering after an economic downturn lasting close to a decade.  Government quickened the slow death of the retail sector when it announced price controls in 2007 and companies were ordered to slash prices to an uneconomic level. Shelves were left virtually empty, with the only product on display being grain or grain products.

More than a year after the economy was liberalised and more stable currencies adopted, the retail sector continues to struggle. Problems characterising this sector have continued despite the policy shift, leaving players wondering what has to be done. Businessdigest’s Leonard Makombe (LM) spoke to Denford Mberi (DM), the managing director of Red Star Holdings, one of the major players in the retail sector, giving a general overview of the sector and specific details on how the company would rebound. 

LM: How would you rate the performance of the retail sector after dollarisation?

DM: Product availability improved significantly and consumers benefited. However, formal retail players did not have foreign currency reserves and were also affected by inadequate capital which was lost during the price control era in 2007 and the hyperinflation. Because of the low barriers to entry, competition quickly corrected prices and margins have actually gone down significantly. Individual retailers who are not members of The Retail Association of Zimbabwe (RAZ) benefited but I do not know whether or not they are making profits. The formal and established retailers who are RAZ members have continued to struggle and may continue for a while to come.  

LM: As a player in the retail sector, how would you rate the performance of Red Star?

DM: Red Star has been affected by what I have already highlighted above and therefore is not performing well.

LM: Many companies have bemoaned the stiff competition from smaller

players in the retail sector, how have you fared against them? What strategies are you implementing to stay afloat?

DM: I have already answered the first part. Strategies to stay in business include, inter alia, raising capital, aligning costs to revenue streams, streamlining business operations and structures and improving operating efficiencies.

LM: How have you managed to transform from the Zimbabwean dollar economy to the multiple currencies, especially in terms of capitalisation?

DM: We have hitherto relied on borrowings. The prevailing interest rates render business unviable. Therefore shareholders are being called to inject capital.

LM: Your latest results showed a loss despite huge revenue realised, is it a measure of how efficient you are or are there other factors contributing to the loss?
DM:  It is a fact that margins in this sector have significantly gone down. The business has inadequate working capital to  stock up. Consumer demand is also currently depressed due to limited cash circulating in the market. This summarises some of the factors and the environment within which Red Star is operating. 

LM: How long would it take you to transform the business from loss making to profitability?
DM: Within one year with adequate capital.

LM: In a statement accompanying your latest results, the auditors said: “The going concern of the group is dependent on the continual support from the holding company, the success of its capital raising process and renewal of the group’s borrowing powers at the next annual general meeting (AGM) in August 2010.”
What support have you been getting and what  do you intend to get from the group?
DM: The Holding Company has provided a number of guarantees where these were required.

LM: In terms of capital, how much are you looking at? How is this figure going to be distributed, I mean are you looking at refurbishment, restocking or opening of new branches?
DM: This will be published at the right time.

LM: How do you intend to renew borrowing powers and how much do you intend to borrow, especially given that the market is dry and the interest rates at around 30% may be discouraging for the retail sector?
DM: This is still work in progress and will be made available at the appropriate time.
LM: Red Star has operations in Zambia, what has been the contribution of this operation to the entire Red Star group?

DM: The operation has been closed because it was making losses.
LM: Do you think having another operation in Zambia would make Red Star realise certain advantages? And if so what are these?
DM: We have just closed one and it does not make business sense to have another operation.

LM: Going forward, how would Red Star respond to the changes in the operating environment especially the competition and the slow elimination of wholesalers in Zimbabwe?
DM: Adequately capitalise and align business model to enable it to compete effectively.