Demise for formal retail businesses as landscape shifts

A decade or so ago, in Harare’s Central Business District (CBD), a major retail outlet closing shop, would be replaced by an equally if not bigger and better outlet.

Likewise, if ever there was a time when a large corporate would vacate its office premises, it would be replaced by an equally bigger corporate.

But not anymore.

Large retail chains that are closing shop for various reasons, are being replaced by outlets that are several times smaller.

Buildings that used to be home to brands such as Truworths, Number 1 Stores, OK Zimbabwe, and Barbours Store to name but a few, are now partitioned into much smaller units, to accommodate boutiques and other smaller retail outlets selling various wares such as electrical gadgets.

Large corporates have moved their offices out of the CBD and have been replaced by sole traders and small and midsize enterprises (SMEs).

Experts say this means the formal sector in the country has undergone or is undergoing a significant contraction.

The country has been struggling with economic challenges for many years, including high inflation, high unemployment levels and a shortage of foreign currency.

Inflation in Zimbabwe has been very high in recent years, making it difficult for businesses to operate profitably. This has led to the closure of many large businesses, including large retail chains.

Truworths closed two of its outlets along Kwame Nkuruma and another two at Eastgate Mall. Its only left with one outlet in the CBD which houses both Truworths Men and Ladies.

Further, the Zimbabwean dollar has been very unstable in recent years, making it difficult for businesses to plan for the future. This has also led to the closure of many businesses, as they have been unable to get the foreign currency they need to import goods and services.

The Zimbabwean economy has been in decline for many years, leading to a decrease in demand for goods and services.

“This has made it difficult for businesses to operate, and has led to a decline in consumer spending and the subsequent downsizing or closure of bigger businesses,” says Walter Mandeya of Trigrams Investments.

He said the country has witnessed significant growth in informal retail due to factors such as high cost of doing business in the formal sector.

“Informal retailers are often able to operate more cheaply than formal retailers, and they are able to adapt more quickly to changes in the market,” says Mandeya.

In a comment accompanying Truworths results for the six months to January 2023, chief executive officer Bekithemba Ndebele, said the sales value performance was negatively affected by, among other factors, “Informalisation of the economy which has resulted in illegal imports selling at below manufacturing costs which the business could not compete against”.

Most big outlets along Harare CBD’s streets have long closed shop and replaced by much smaller outlets, selling mostly imported clothing, phones, cosmetics and laptops.

“Zimbabwean consumers are increasingly looking for more affordable and convenient shopping options.

“This has led to a growth in the popularity of smaller, stores, which are often able to offer lower prices than larger stores,” explained Mandeya.

However, the shift to smaller outlets was not by choice.

Mandeya said the closure of big retail chains in Zimbabwe is a sign of the challenges facing the country’s economy.

It was motivated by Zimbabwean consumers increasingly having to change their shopping habits to suit their pockets.

Consumers have significantly shifted to shopping at smaller stores and from informal retailers because smaller outlets are able to operate with lower overhead costs, which allows them to offer lower prices to consumers.

This is important for consumers who are struggling to make ends meet in a difficult economic environment where salaries have been decimated by high levels of inflation and currency depreciation.

But the shift has had a ripple effect on the economy, as it has led to changes in the way that goods and services are distributed, according to Mandeya.

At a recent trading update, Delta Corporation chief executive officer, Matts Valela, spoke about the shift in how goods are distributed.

“It is important to note that the formal retail space is fairly distorted at the moment with volumes going to the informal sector and therefore the outcomes are not as what we had expected,” noted Valela.

Harriet Zvomuya, running two boutiques down town Harare CBD, believes the downgrade from big outlets to smaller outlets, is also a sign of the resilience of the Zimbabwean people.

“We have been able to fill the void left by the big chains, and we are providing much-needed goods and services to consumers,” said Zvomuya.

To her, the growth of informal retail “is a positive sign for the future”.

“It remains to be seen whether the retail sector in the country will recover to accommodate big chains again, but if it does turn the corner, we could also grow in stature,” Zvomuya said.

The closure of big retail chains has led to the loss of thousands of tax compliant jobs and this has had a negative impact on the economy, and has made it more difficult for people to make ends meet.

“One needs a stable salary something which my business does not guarantee,” said Stanley Murahwa who sales laptops next to Zvomuya’s shop.

The replacement of larger corporates with small and unstable businesses has had significant impact on tax revenue, as the Government is unable to collect taxes on this informal activity. The inability to collect tax has a negative impact on the government’s ability to provide essential services.

Real Estate Sector expert, Kura Chihota, said landlords now favour smaller partitioned units to accommodate nimble traders that allow them to de-risk.

“From a landlord perspective you want to de-risk, instead of having one tenant taking a lot of space, and having all the buying power in negotiating rentals, you would rather split in order to de-risk by having alternative tenants in place so that you can increase the per square metre rate, because they have a smaller space, and then from your risk exposure perspective you have got multiple tenants.”

Chihota said even institutions are taking a decided strategy in this direction, Eastgate Market along Robert Mugabe being a best example of that.-ebusinessweekly