“Lipstick Effect” becomes evident as consumers remain under pressure
Issued by hk strategies - Aug 18th 2016, 08:55
Growth in retail trade sales slowed during June as uncertainty still leaves consumers postponing the purchase of non-essential items.
According to StatsSA retail trade sales decreased by 0,2% during June, after climbing by 3,3% during May. Sales in June were still 1,7% higher than in the same month last year, at constant prices. This compares to a year-on-year increase of 4,5% during May.
Stefan Salzer, partner and managing director at the Boston Consulting Group (BCG), says growth in overall retail trade sales remain muted. “Growth in sales could not sustain the improvement we saw in May and has even fallen below the muted levels we saw during March of this year. It is difficult to identify a clear-cut trend, but it seems like the downward trend has not reached rock bottom yet.”
Sales at general dealers, which includes large food retailers like Shoprite and Pick n Pay, made the biggest positive contribution to the overall increase in retail trade sales during both May and June. Sales at general dealers was 3,3% higher during June than in the same month last year. Sales of food, beverages, and tobacco in specialised stores increase by 7,5% compared to a year ago and also helped to push overall retail sales higher.
Salzer says discretionary spending remains under pressure as consumers postpone the purchase of non-essentials items. “We see general dealers continue to profit as consumers go to stores where they can get everything in one place and expect the best prices. However, factors like uncertainty about employment mean that they postpone buying new appliances or new clothes.”
Household furniture, appliances, and equipment placed the biggest dampener on overall retail sales and dragged it down by 0,6 percentage points during June – the fourth consecutive month in which spending in this category was lower compared to a year ago. Sales of textiles, clothing, footwear and leather goods as well as of hardware paint and glass also contributed negatively to overall retail sales.
Sales in the category for pharmaceuticals and medical goods, cosmetics and toiletries climbed by 9,2% compared to a year ago and made a positive contribution of 0,6 percentage points to the overall year-on-year increase in retail trade sales during June. Salzer says this increase may be an indication that the so-called “Lipstick Effect” is currently influencing South African consumer behaviour.
Economists argue that while female consumers cut back spending on more expensive luxury goods during tough economic times, they increase spending on products like lipstick which are viewed as a more affordable luxury. “It has almost become an economic cliché that overall sales decline during difficult economic times, but spending in this category increases.”
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