DELISTED diversified group Lifestyle Holdings has recorded a slump in business over the last six months as Zimbabwe’s economy continues to underperform.
Group chief executive officer Tawanda Nyambirai told NewsDay that his business had been affected by depressed consumer demand triggered by liquidity constraints which confronted the economy before and after the July 31 general elections.
Nyambirai said despite adopting a cocktail of measures to contain rising operational costs, some of the company’s units remained in the red. This, he said, has also resulted in delays by the company in paying staff salaries.
Among some the measures that the company employed to cut bloated operating costs are a salary cut between April and June this year.
The company also closed down some of its factory and retail outlets in Harare.
“The hardships facing the economy have negatively affected the financial performance of TN Harlequin Luxaire (Private) Limited (“TN Harlequin”). Furniture products being capital products have seen significant reduction in demand as disposable incomes came under pressure from the liquidity crunch that the country is facing,” Nyambirai said.
“Increasingly most households’ disposable incomes are now just enough to meet basic needs such as rent, food, transport and school fees.
The lack of funding to finance long-term credit sales has worsened the situation for TN Harlequin.
“Resultantly, sales have declined significantly from 2011 levels. In the absence of sustainable funding, the business cannot extend long term credit to customers to try to stimulate demand. Consequently, TN Harlequin has been making losses since the beginning of the year with gross profit way below the levels required to cover operating costs.”
After showing signs of improvement in the first three years of dollarisation, the Zimbabwean economic environment began to worsen.
Investment into the country has not reached the levels necessary to sustain economic growth. This deterioration in the economy has seen capacity utilisation in the manufacturing sector coming down from 44,9% last year to 39,6% in 2013.
“Management engaged its landlords to negotiate its rentals downwards and also made a decision to close some of the branches that were not performing as per management’s expectations, hence, the reduction in the rentals costs bill. Management has reached a ceiling on what it can do to reduce its rental costs and will have to close down the high cost branches,” Nyambirai said.
“The above (cost-cutting) strategies have had limited success in addressing the bloated operating costs of the company. Resultantly, the company has fallen behind in salary payments.
While some subsidiaries are up to date on salaries, the furniture manufacturing division has not yet paid October salaries, while the Retail Division has only paid part of the September salaries.”
According to the National Social Security Authority (NSSA) Harare Regional Employer Closures and Registrations Report for the period July 2011 to July 2013 shows 711 companies in Harare closed down, rendering 8 336 individuals jobless as the economy continues to underperform.