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Retail sales decline to record low since global financial crisis
Retail sales decline to record low since global financial crisis

Retail sales decline to record low since global financial crisis


By Lameez Omarjee - Mar 16th 2017, 08:40

Johannesburg – Retail sales declined 2.3% in January 2017, according to data released by Statistics South Africa (StatsSA), this is the worst performance since 2009 

Sales were down from an annual growth of 1% reported in December 2016. “The latest annual growth rate was well below market expectations for an increase of 1.1%,” said Kevin Lings, chief economist at Stanlib. “It is also the largest annual decline in retail sales since the global financial market crisis in 2009,” he said.

Since December 2016, January sales dropped 1.2%, following a 2.5% decline in December 2016. “The month-on-month sales performance was much worse than market expectations, which was for growth of 0.2%,” said Lings.

For the three months leading up to January 2017, trade sales increased 0.6%, compared to the previous quarter. This was mainly attributed to a boost in sales in November for Black Friday. Sales jumped 3% in November.

But overall sales have been following a declining trend and a further slowdown is expected for the first half of 2017 following tax hikes, explained Lings.

Compared to 2015, where low inflation of 4.6% and a wage increase of 7.7% helped South African consumers, the economic environment in 2016 was tougher on consumers. “Unfortunately, this systematically changed in 2016 as inflation moved noticeably higher, the Reserve Bank continued to hike rates, and banks became much more circumspect in the granting of credit,” said Lings.

As a result, at the start of 2017 consumers had less discretionary income available for general retail activity. A drop in consumer confidence, coupled with tax hikes, increases in user charges for water and electricity, the high fuel price, higher interest rates and higher unemployment will impact retail spending going forward, he said.

But Lings added that the retail sector was more resilient than others in the economy such as mining and manufacturing. “This is because household income growth has consistently exceeded inflation due to above-inflation wage increases in key sectors of the economy.”

Data released by StatsSA shows the main contributors to the decline were textiles, clothing, footwear and leather good sales which were down 5.3%, impacting overall sales by 1 percentage point. Household furniture, appliances and equipment sales also declined 3.4%. Sales by general dealers were down 2.8% which impacted overall sales by 1.2 percentage points, according to the report.

Declining spend to continue

Stefan Salzer, partner and managing director Boston Consulting Group South Africa added the decline in household goods was due to the increasing stress on discretionary spend in middle-class households.

“Muted growth across the retail sector shows the ever-increasing economic pressure that consumers are facing in South Africa,” he said. Constrained spending is expected ahead of the Easter holidays. “The outlook for retail remains bleak,” he said.

FNB economist, Mamello Matikinca echoed these views, saying that although falling inflation in the latter part of the year might boost spend, tax increases will limit the rate of increase.

“Furthermore, weak consumer confidence, household credit demand, and high unemployment will contain household expenditure growth during the first half of 2017,” she said.