Sales jump 9.8%

Retail sales rise sharply in bumper April

ECONOMIC NEWS

Business Report - Jun 20th 2011, 08:16

Retail sales rose sharply in April, with annual growth jumping to 9.8 percent from 5.3 percent in March and far surpassing a consensus forecast of a 5.1 percent rise. 

The surprising gain was posted despite other data that show confidence in the retail sector slumped in the second quarter. Indications are that April’s gain was driven by a spate of public holidays rather than marking an acceleration in consumer spending.

The retail data released by Statistics SA on Wednesday show that sales were strongest for clothing, pharmaceutical and cosmetic retailers.

Johannes Khosa, an economist at Nedbank, said sales in April were probably boosted by the many public holidays, which provided consumers with additional time to spend.

All major categories recorded growth annually, but the strongest contributions came from textiles, clothing, footwear and leather goods; drugs, medical goods, cosmetics and toiletries; and household furniture, appliances and equipment, which rose 16.9 percent, 13.7 percent and 13.1 percent, respectively. Food retailers, which had had three months of successive declines, rebounded in April with sales rising 6.6 percent.

Khosa said the exceptionally strong retail sales growth in April was unlikely to signal the start of a new acceleration in sales in the months ahead. Instead sales growth was likely to ease off the higher base as consumer confidence softened as a result of slow job creation, rising costs and prospects of higher interest rates.

The strong retail sales in April ran counter to other evidence that shows consumer demand lagging.

The Ernst & Young/Bureau for Economic Research retail survey shows that the business confidence levels of retailers fell sharply during the second quarter of 2011. The percentage of retailers reporting that they were satisfied with prevailing business conditions slid from 58 in the first quarter to 47, after peaking at a three-year high of 63 during the fourth quarter of last year.

Derek Engelbrecht, the retail and consumer products sector leader at Ernst & Young, said this contraction was largely due to a marked slowdown in sales growth and substantial increases in retailers’ purchasing prices. “Given the softening in consumer demand, most retailers were unable to increase their selling prices in line with the increases in their input costs, implying downward pressure on profit margins,” Engelbrecht said.

He added that expectations of lower real wage increases, increasing food and fuel prices and interest rate hikes during the second half of this year, as well as base effects, meant the growth in retail sales volumes was likely to taper off further towards the end of the year.

But if retailers could increase their selling prices without further impeding volume growth, turnover could remain sturdy, Engelbrecht said