Listed apparel retailer Truworths says it has tightened credit conditions, highlighting the extent of economic damage caused by the Covid-19 pandemic and hyperinflationary pressures during the 12 months to July 12 2020.
Truworths CEO Bekithemba Ndebele said the clothing retailer was tightening the purse string “conservatively and judiciously” and managing the granting of credit.
Consequently, the number of active accounts went down 0.5% during the period under review.
“Due to hyperinflationary conditions, the business has had to conservatively and judiciously manage the granting of credit, as a result the number of active accounts decreased by 0.5%,” Ndebele said in a statement accompanying Truworths full year results to July 2020.
“The doubtful debt provision as a percentage of gross debtors was 13.5% compared to 15.2% in the prior period.
The tenure of the credit period was reduced and monthly interest charges were reviewed upwards.”
He said the second half period was negatively affected by the Covid-19 lockdown.
A difficult business climate that has unsettled the economy may continue troubling the markets in 2021, Truworths said.
The company’s profit for the period went down 60% to ZWL$9.3m during the reviewed period, from ZWL$23,4m in the prior comparative period due to the lockdown which limited customers to buy clothes in the company’s various units spread across the country.
Total revenue for Truworths went down to ZWL$165.3m, from ZWL$177.8m in the same period in 2019.
The company’s gross margin was flat while higher operating expenses and lower finance income pushed pre-tax profit margins 5.8% down.
Ndebele said revenues were affected by credit restrictions in some of the best known credit-granting brands on the market such as Truworths MAN and Topics.
Number 1 Stores is also part of the Truworths group.
Big manufacturers and retailers across the markets have reported similar trends, which analysts predict may not fizzle out unless spending power is restored.
The country is grappling with foreign currency challenges and liquidity of the local currency as the customers spending power continues to fade due to a subdued environment.
Ndebele said the short-to-medium term environment was expected to remain constrained due to diminishing consumer purchasing power.
He said the Covid-19 has resulted in virtual working on some of “our customer base leading to a shift in the merchandise assortments and international supply chain disruptions”.
“Product availability was constrained during the reporting period due to foreign currency unavailability and pricing constraints.
However, this has since improved with the introduction of the foreign exchange auction by the central bank,” Ndebele said.
The company did not declare a dividend payout to prepare the group for potential headwinds.
Ndebele said the Covid-19 pandemic, together with the rapid disruption of international supply chains, would be among the biggest hurdles to recovery.
Clothing apparel’s key central Harare outlets were expected to start recovering since the government lifted most Covid-19 restrictions about two months ago.
Analysts at research firm, Morgan &Co, blamed an overflow of second hand imports for the slowdown at Truworths. Morgan & Co said: “We note that the substitute market has already begun cannibalising Truworths market in Zimbabwe through cheap imports from the region that have become pervasive in the country.
“Performance of the formal apparel market is likely to remain subdued because of low disposable incomes viz-a-viz the high income elasticity of clothes and fashion accessories.”
Market analysts said despite the government’s ban on second hand clothes, especially during the Covid-19 period, the clothes were smuggled into the country through the porous borders.
Around Harare clothes vendors were selling clothes from around ZWL$100, leaving the clothing industry on the edge given high costs associated with the industry.
Economists say people will continue to buy the second hand clothes in the coming year as there is no sign of economic recovery in the next 12 months.