Edgars Zimbabwe cuts costs to stay afloat in difficult economy

AFTER instituting cost-cutting measures, Edgars Zimbabwe has set its eyes on improving efficiencies and streamlining business processes through a $1 million (R13.5m) upgrade of its information technology (IT) platforms and other measures.

Edcon, which owns Edgars, is expanding its presence in the rest of Africa market, a strategy that several other South African companies have adopted to tap into the opportunities that other regional markets are offering.

The South African clothing retailer has a significant stake in Edgars Zimbabwe of almost 40 percent.

Edgars Zimbabwe yesterday posted a 13 percent rise in after tax profits to $1.2m despite almost stagnant revenues.

Job insecurity

The company said revenues for the half-year period to the end of June registered marginal growth of 1 percent, hobbled by declining economic fundamentals, low disposable incomes and heightening job insecurity in the Zimbabwean economy.

“As anticipated, there has been a slight deterioration in the quality of the book and we have taken defensive measures to safeguard against further avoidable deterioration.

“Total trade debtors were $29.8m net of provisions for doubtful debt of 6 percent (2014: 2 percent), which provision was increased as a conservative reaction to the deteriorating trading environment,” Themba Sibanda, the chairman of Edgars Zimbabwe, said last week.

Dollar strength

A weaker rand had also eaten into the company’s financial position. Sibanda said: “The strengthening US dollar vis-àvis the rand has brought to the fore the need to focus on cost containment.”

As a result of economic difficulties in the Zimbabwean market, retail operators have had to “resort to various promotions to stimulate consumer spending” power.

The upgrade in Edgars Zimbabwe’s IT platforms

The introduction of Jetbranded stores had also eaten into the Edgars’ market share as customers sought value through preference for discounts offered by Jet. Sales decreased by 11.2 percent from 2014 and profitability decreased to 8 percent of sales.

The new Jet stores’ contribution to overall turnover for the Edgars group’s turnover increased to 27.1 percent, with an increase of 43 percent over the previous period.

Edgars Zimbabwe said this had been achieved through the granting of credit facilities to customers.

Bad debt recoveries for the period averaged 28.7 percent, leaving net bad debt at 0.4 percent “of lagged debtors” and 1.9 percent of credit sales.

The company’s factory division sales volumes, however, shed 3 percent while profitability reduced to $61 000 from the $264 000 achieved last year.

“The unit has embarked on a productivity improvement exercise and a modest export programme is being developed,” officials said.

Companies in the Zimbabwean textiles manufacturing and clothing industry have been struggling in the past few months, shedding as many as 27 000 jobs by September 2014. Recent data showed that the industry employed 4 000 workers, while capacity utilisation had sagged to below 20 percent.

Challenge

“Our biggest challenge is that duties are not being collected (from informal traders) as they should at the boarders, which create an unlevel playing field. We need an improvement on the supply chain, the cost of doing business and imports tariffs,” Jeremy Youmans, the chairman of the Zimbabwe Clothing Manufacturers Association, said.

Linda Masterson, the chief executive of Edgars Zimbabwe, previously said the company was geared to put “greater leverage” on partners for the sourcing of merchandise.

This would broaden the company’s product and category offering.