With dollarisation in place, Pelhams CEO Oswald Masoha (OM) believes this could be the time to reposition the company in the face of immense competition from traditional and new players. Our Senior Business Reporter Bernard Mpofu (BM) this week spoke to Masoha on his firm’s business prospects and threats. The company is, however, in a closed period pending the release of its financials later this month. Below are excerpts of the interview.
BM: What are your primary goals?
OM: My primary goals are for Pelhams to regain its position as the leading furniture retailer in Zimbabwe. This will be achieved through a recapitalisation process, distribution and leveraging of brands that the company currently holds, namely Pelhams, Bradlows, Furniture Discount Centre and Banet and Haris. After being in business for 61 years, we believe this gives a competitive advantage in a market that is full of low quality imitation products.
BM: What impact has the informal sector had on your operations?
OM: The informal sector on the retail side has increased competition in our market space, especially in the appliance and electrical product. The informal sector is more driven by price and excludes elements of product branding quality and associated guarantees or warranties. The cash environment that prevailed from 2003 to 2009 resulted in loss of market share for our business which was predominantly credit driven. Our business thrived on an established middle class which was wiped out during hyperinflationary period.
On the manufacturing side, the informal sector has provided a wider source of product and opportunities for product development for our business, although costs continue to be a problem mainly due to capacity limitations. The majority of players in this area are all former employees in the formal furniture manufacturing process and possess the skill and experience to produce quality products.
In terms of impact, I would say very little. We have not been trading much on the electrical side although we are just starting to improve that area. Again on the manufacturing side, I think they target a different market. There is an impression created that if it’s coming from Glen View, then it must be cheap. This is not correct as some of their products are more expensive, but what is definitely true is that the quality is poor due to the materials used.
BM: Pelhams is one of the small-tier stocks on the ZSE. Do you feel that Pelhams should remain listed on the ZSE or privatise?
OM: I believe that the performance of the share and indeed this company has been negatively impacted by fundamentals in the economy that did not favour our type of business. In an economy with low disposable incomes, the priority of purchase lay on basic commodity. We believe with the introduction of the multi-currency system and credit there is scope for our business to turn around and give a performance that justifies its existence on the ZSE.
It is true that in times of difficulty the furniture retailers suffer more than the food retailers. We also believe that as the economy picks up, the recovery process will be gradual for the furniture retailer as productivity increases and with it employment and credit. We believe the volumes that we achieved prior to 2003 are reflective of the potential in this business.
BM: Can you quantify the losses you made during the hyperinflationary era?
OM: I can’t say we actually lost money, it’s the opportunities we lost because of the cash environment that prevailed then.
BM: Why haven’t you been aggressive and assertive as your peers in marketing your products since dollarisation? Has this been deliberate?
OM: We have always wanted to go to the market with something to offer. We will start our marketing drive soon since we have started offering 12 months credit. We moved to 12 months in mid-October. Before that we were offering six months credit since July 2010. We want to go to 36 months credit as the economy allows us.
BM: What market share did Pelhams have before business shrunk?
OM: We accounted for between 30 to 35% in 2001-2002.
BM: What policy changes are you expecting from Finance minister Tenda Biti in his budget later this month as a furniture retailer?
OM: We would like to see the minister put policies in place that will continually work to create an equal playing field. We would also like to see a review of the tariff structures and systems in a manner that does not allow avoidance as has happened in the past.
An example is the monthly US$250 duty free threshold for individual that is not tracked at any point of entry to ensure that it is not abused to import product used for trade. A person can bring 12 refrigerators in 12 months and the only control is the date of entry in the passport.
We would also like to see duties on imported product for the furniture retail kept at consistent minimal amounts because there is not enough capacity in the market to meet demand. It is important that the minister puts in place thresholds which local manufacturers must meet before duty increases are put in place which range from output, price, quality and terms.
The Finance minister should put measures through the Competition Commission to prevent monopolies and cartels who push for prevention of imports, but at the time running retail outlets.
We would also like the minister to review the payment system for value added tax to cater for the credit sales we now make on a monthly basis and collect over a 12-month period while we are required to pay all the VAT a month after the sales.