Zimbabwe’s top retailer, OK Zimbabwe, is grappling with a staggering decline in both volumes and revenues, which fell by 36% during the lucrative quarter ending in December 2023.
This downturn has been attributed to ongoing de-stocking and the closure of four retail outlets, a move that the company on Monday hinted may extend further as it evaluates its underperforming stores.
The challenges plaguing the retailer are not isolated; they mirror the struggles faced by various sectors across Zimbabwe as pricing and currency distortions weigh heavily on operations.
OK Zimbabwe, which competes against Pick n Pay in the country, closed down four outlets during the period while it is mulling more store closures, targeting those not performing optimally.
Company secretary Margaret Munyuru detailed the dire situation in a statement on Monday, citing that daily stock availability levels had plummeted to approximately 50% of the normal stocking levels due to significant stockouts.
“The group experienced episodes of stockouts during the quarter under review as evidenced by daily availability levels of around 50% of normal stocking levels. These stockouts arose from restricted supplies from manufacturers and distributors,” Munyuru said.
OK Zimbabwe moreover “had outstanding and overdue creditors’ balances which were predominantly denominated in US dollars against a backdrop of low US dollar sales” collection.
“The low stocking levels are a direct manifestation of sub-economic pricing arising out of exchange rate distortions and suppliers’ need for foreign currency invoicing to cover their operational and raw material needs,” added Munyuru.
Suppliers to Zimbabwean retailers also insisted “on shorter trading terms and in some cases prepayments for supplies invoiced in local” currency. This exerted pressure on OK Zimbabwe’s working capital and necessitated the need to access short-term funding.
Compared to the same period a year earlier, volumes for the December quarter decreased by 36%, with the reduction in volumes translating to revenues declining by a similar margin.
Further worsening the operating environment was a largely subdued consumer spend. The period was marred by acute local currency liquidity shortages restricted access to the much needed funding for the company to cover working capital cycles.
“The local currency unit, ZWG, experienced a sharp devaluation at the end of September 2024 as monetary authorities sought to improve the viability of the exchange rate system for the broader economy. Invariably, the devaluation had the net effect of nearly doubling existing US Dollar denominated obligations in loans and creditors’ balances,” explained Munyuru.
To address these challenges, OK Zimbabwe has started restocking its stores, leaning on the support of suppliers and financial institutions that have stepped in with short-term funding structures.
The retail operator has also developed alternative procurement models have that include structured stock supply arrangements with a third party for supplier assurance purposes as the business works to restore critical supply relationships with both local and foreign suppliers.
“Fortunes of the country’s formal retail sector are hinged on the stability of our exchange rate regime. There is need for absolute clarity on the roadmap towards a full market determined exchange rate system… such a liberalized system will go a long way in restoring the competitiveness of the formal retail sector,” said the company.
BUSINESS REPORT