PHILLIMON MHLANGA
The performance of the apparels retailer, Truworths Zimbabwe, has been affected by the current hyperinflationary environment characterised by massive devaluation of the local currency, meaning the company could be trading below the replacement values of its stocks.
At the same time the devaluation of the Zim dollar has resulted in disposable incomes being heavily eroded, a situation which is impacting negatively on Truworths and other retailers.
Although Finance Minister Mthuli Ncube banned the publication of the inflation rate which had reached 176% in June, it is estimated that the hyperinflation rate has hit more than 500%.
The economy has declined further, shop prices rocketing and lowering aggregate demand due to the erosion of disposable income.
Truworths Zimbabwe CEO, Bhekitemba Ndebele, said the worsening economic conditions and the inconsistent government policies all make the company’s business less attractive.
“The operating environment continues to be challenging for us as the effect of hyperinflation continues to bite,” he explained.
“Whatever we sold last week, we have lost it. Hyperinflation has become the biggest threat to volume growth as it has eroded disposable incomes. We expect the situation to worsen in the short-term.”
In February this year, the government removed the 1:1 parity peg between the Zim dollar and the US dollar when it liberalised the foreign currency market, introducing the interbank market which debuted at ZWL$2.5: US$1.
But this week, the Zim dollar was trading at ZWL$16:US$1.
Zimbabwe’s economy is in recession and expected to contract by 6.5% this year. Ndebele and several other business executives have bemoaned the obtaining business environment which remains volatile.
Meanwhile Truworths Limited chairman, Christopher Peech, has stepped down from his position (last Thursday) after serving the company for nearly 20 years.
He was succeeded by former deputy chairman Mordecai Mahlangu.
Peech, who chaired his last annual general meeting (AGM) last week at the company’s headquarters in the capital, said: “After serving for 19 years, I feel I enjoyed myself very much. It’s time to step down.”
In its financial report for the year to 7 July 2019, revenues for Truworths stood at ZWL$21.2m, from ZWL$17m in 2018. Profit for the group was ZWL$42.8m, from ZWL$0.8m recorded in the prior year.
Discretionary spending came down due to currency debasing, whose results has been inflation. Incomes of most customers have not matched the debasement of the currency, meaning people have to pay more for less.
This has resulted in the decline in spending across the company’s chain. The company expect the pressure on discretionary consumer spending and foreign exchange to persist in the short to medium term.
