BY TAFARA MTUTU
Zimbabwe Stock Exchange-listed clothing retailers Edgars and Truworths have experienced waning demand in recent years as informal secondhand retailers flood the local market. More than half of informal businesses in Harare’s CBD sell a variety of apparel that includes men’s and women’s clothes, shoes, and babies clothing. These informal clothing retailers offer cheaper alternatives to Edgars’ and Truworths’ product offerings as they have fewer expenses to cover, such as rent. Further, some CBD offices are being subdivided into smaller spaces that are subsequently leased out to informal retailers in locations that are equally as attractive as the listed retailers’ locations in the CBD.
The rise of the secondhand clothing market is also taking hold even on a global scale. According to a 2020 survey by the Boston Consulting Group and Vestiaire Collective, the secondhand apparel, footwear, and accessories market has grown to become a US$30bn market worldwide, and it is expected to register annual growth rates ranging between 15% and 20% over the next five years.
Key drivers of the secondhand market include affordability, selection availability, item uniqueness and most recently, consumers’ growing environmental concerns. Today, 70% of preowned apparel buyers like the sustainable aspect of secondhand consumption, compared with 62% in 2018.
We also note that in South Africa, clothing retailers have evolved to general retailers in a bid to sweat their competitive advantages. Established retailers typically hold lucrative locations in the market, and they have expertise and access to market research that complements their sales. Unlike informal retailers, these established players can increase the sales performance of a product line by changing its position on a shelf (eg, toys sell quicker when placed on lower shelves because they are at eye-level with children), or placing complementary products side by side (eg, placing clothes that pair well together on mannequins).
Because these advantages can apply in any mass market, several listed South African retailers have evolved into general retailers that operate beyond one product group. Woolworths Holdings, Pepkor Holdings, HomeChoice International, The Foschini Group and Mr Price Group offer various and different combinations of food, homeware, beauty products, accessories, appliances, and clothing lines.
These retailers also have their different product lines under one roof such that customers who visit one department are easily enticed into other departments. We opine that local clothing retailers could mirror their South African peers in a bid to reinvent themselves and maintain market leadership.
Of all the markets that South African retailers serve, the homeware retail sub-sector stands out as a low-hanging fruit for Zimbabwean retailers. The advantage of branching into this market is hinged on relatively less competition in the furniture retail market compared to the clothing retail industry.
Zimbabwe’s furniture market comprises Axia Corporation’s TV Sales & Home, Teecherz Home & Office Furniture, and other smaller private players. Although there is no market research that has quantified this, it only takes a stroll in Harare’s CBD malls to realise that the number of players in home retail is infinitesimal when compared to players in the clothing retail market. Hence, there is scope for giant retailers like Edgars and Truworths to partner local and informal furniture manufacturers to attain a win-win solution.
More specifically, there is scope for a partnership between these formal retailers with informal furniture manufacturers in Glenview’s Area 8 Home Industry Complex, popularly known as Area 8. The complex is arguably the largest informal furniture hub in Zimbabwe. The informal hub manufactures furniture such as lounge suites, dining sets, cupboards, wardrobes, beds, desks, chairs, television stands and cabinets. The partnership offers formal retailers, informal manufacturers, and consumers several advantages.
Advantages to formal retailers: Operating a home products line adds another revenue stream to the businesses. The diversification of revenue streams will also result in less volatile earnings for the business. Axia, the holding company for TV Sales & Home, also has two other lines of business that includes the Transerv operations. The diversification in revenue streams is behind Axia’s relatively stable margins since its listing on the ZSE in 2015. The volatility of Axia’s Profit Before Tax Margins, as calculated by standard deviation, is 3%. In comparison, Edgars’ and Truworths’ volatility is much higher at 8% and 16%, respectively. We also note that retailers can also improve margins given that the furniture retail market in Zimbabwe is not saturated as much as the clothing retail market. Theoretically, sellers have more room to capture higher margins in markets that are not in perfect competition.
The country’s clothing retail is typical of a market in perfect competition, and businesses in this market are likely to fetch tighter margins in comparison to furniture retailers. However, from an empirical standpoint, this assertion produces mixed results. Axia, the holding company for TV Sales & Home has a 5-year average Profit Before Tax Margin of 9% whereas the comparative figures for Edgars and Truworths stand at 12% and 2%, respectively. Hence, the move to expand into home products retail could be more beneficial to Truworths than Edgars.
Advantages to informal furniture manufacturers: Partnering with formal retailers will allow informal manufacturers to drive sales. Formal retailers have expertise in driving sales through credit sales. This has been key in Edgars’ and Truworths’ resilience over the past two years, as well as TV Sales & Home. Secondly, the distributional capacity of these retailers can result in manufacturers connecting with potential clients in all of the retailers’ locations. Edgars can potentially increase the footprint of informal manufacturers through its 26 Edgars outlets and 27 Jet stores. Similarly, Truworths has 16 Truworths outlets, 26 Topics outlets and 17 Number 1 Stores throughout the country that can increase the sales potential of informal manufacturers. Thirdly, informal retailers can benefit from the reputation of the Edgars and Truworths brands.
These retailers offer warranties and have return policies on some of their products which they could extend to the home divisions. Such customer service has been associated with good customer loyalty.
Advantages to customers: Access to a variety of products with affordable terms is the key advantage that customers can count on. Consumers sometimes face a need to purchase goods but, without credit facilities that retailers offer, often settle for an alternative that is hardly ideal. With credit in the picture, the burden will be easier.
A newly wed couple, for example, can start a home without the burden of having to fork out the full price for their furniture. In addition, consumers do not need to travel long distances to buy affordable furniture. With the distribution capabilities of retailers, these products can be made available in every major town and not just Area 8. This also adds more options to consumers over and above established players in the industry such as TV Sales & Home and Teecherz Home & Office Furniture.
Mtutu is a research analyst at Morgan & Co. — email@example.com or +263 774 795 854.