SA’s largest non-grocery retailer Pepkor has thrown in the towel in the Zimbabwe market after struggling to trade amid soaring inflation, fuel shortages and stagnant wages.
The company, whose brands include Pep Stores, Ackermans and Shoe City, has closed the remaining 20 stores in Zimbabwe, bringing to an end its 20-year presence in that country.
Zimbabwe is experiencing its worst economic crisis in a decade marked by triple-digit inflation and foreign currency shortages, with most companies exiting as they are unable to take out foreign currency.
Pepkor is one of several SA companies that have been caught in Zimbabwe’s economic meltdown. Cement maker PPC last week reported that rising inflation and currency devaluation in Zimbabwe affected its half-year results.
“A decision was made to exit operations in Zimbabwe as a result of the continued macroeconomic challenges in the country and ongoing devaluation of the local currency. Management is in final negotiations with the relevant parties to conclude the terms of sale,” Pepkor said in a statement.
The company, which once had about 200 stores in Zimbabwe, decided to close the remaining stores because there were no signs of improvement in Zimbabwe’s economic conditions, CEO Leon Lourens said on Monday.
“The last few years have been tough. We have hung in there mainly for the sake of our loyal employees in that country. But it got too energy sapping for little returns and we have decided to move on,” he said.
Ron Klipin of Cratos Wealth said on Monday the company’s decision to close shop in Zimbabwe was understandable. “They have been downsizing for some time. With the new currency not convertible, it is not worth waiting for the situation to improve. The opportunity cost (of staying in the Zimbabwe market) is high because they can invest in other jurisdictions,” Klipin said.
As a result of the decision to exit Zimbabwe, the company suffered a loss of R70m, which includes the impairment of the disposal of assets.
Lourens said the company, formerly known as Steinhoff Africa Retail, had slowed down in new investments in the rest of Africa, where it has been operating since 1995. “We have learnt many lessons. One of the lessons is that you must know when to speed up and when to slow down. Now is the time to slow down,” he said.
CFO Riaan Hanekom said the company, whose capital expenditure in the year ended September 30 was R1.71bn, would only invest where it would get “adequate” return, especially in the rest of Africa.
“The African business is in a consolidation phase and 14 stores were closed, reducing the store network to 313 stores in total, excluding Zimbabwe,” Pepkor said.
Hanekom said, as a percentage of revenue, capital expenditure could fall from 2.5% to 2.3%.
Speaking at the release of the company’s results, Lourens credited the “defensive” nature of Pepkor businesses for its performance in a market characterised by high unemployment, low economic growth and high dependence on social grants.
“All of our businesses are in the value and discount space. We have kept the discipline of not drifting (away from that),” he said.
Lourens said 96.5% of items at Pep stores were cheaper than in any other store. “They are targeting a difficult segment where unemployment affects their customer base,” he said.
Pepkor increased full-year headline earnings per share by 16.7% to 98.3c, while basic earnings per share fell 22.5% to 64.6c, as a result of a R1.2bn impairment at the Building Company.
Revenue increased 9% to R69.6bn and operating profit was up 12% to R7.2bn
The company cut its dividend by almost a quarter on Monday due to a contraction in the building materials market. With Kevin Samaita