OK: Most sales are in Zimdollars, H1 volumes down 27% as incomes take hit

Zimbabwe retailers
Govt tightening forex use to manage exchange rate, inflation (pic: Philimon Bulawayo/Reuters)

The country’s biggest supermarket chain says most of its sales are still in local currency, months after the government allowed Zimbabweans to buy and sell using foreign currency.

Sales volumes in the first six months of the year were down, as inflation hit incomes. In a trading update, OK Zimbabwe said sales volumes in the six months to September fell 26.9%, compared to the same period last year.

“Earnings did not keep pace with increases in prices and this, in addition to the effect of Covid-19, constrained demand. As a result sales volume for the period declined by 26.9% compared to the same period in prior year in an environment where aggregate demand has declined.”

Government earlier this year lifted a ban on the use of foreign currency for local transactions. In August, central bank governor John Mangudya said 50% of all local trades were now in United States dollars.

However, OK says most of its own sales are still in Zimdollars, reflecting the real state of incomes in the economy.

“With effect from April 2020, the authorities allowed the US$ to be used to settle transactions alongside the ZWL. However, the Group’s sales remained predominantly in ZWL,” says OK.

This trend also shows the different ways that parts of the retail sector have responded to USD usage. While formal grocery retail uses the official exchange rate, other retail sectors even offer discounts for USD payments.

The forex auction system, introduced in June, has given the company better access to the foreign currency it needs for its imports.

“The authorities introduced the foreign currency auction system to allocate foreign currency, guided by economic priorities for the country. Between allocations from the auction and the foreign currency sales generated in the business, the Group was able to pay for all its import requirements,” OK says.

Tough 2020 for retail

The year 2020 has been tough for retailers. The economic crisis, which had already decimated incomes, was worsened by COVID-19, which shut down stores and disrupted livelihoods.

Edgars has recently reported a 50% drop in unit sales so far this year, compared to same time 2019. The low-budget Jet stores suffered a 43% decline in unit sales.

A new survey by Zimstat and World Bank shows that 90% of Zimbabwean households, who operated a non-farm business, suffered a drop in revenue under lockdown in July. Some 60% of urban workers saw their wages being cut or stopped totally.

Despite this, OK opened two new stores in October and November and targets to refurbish eight more outlets by the end of its financial year.