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South African retailers across the board are taking strain, with consumers under pressure due to an unprecedented VAT increases and record fuel prices.
South African retailers across the board are taking strain, with consumers under pressure due to an unprecedented VAT increases and record fuel prices.

SA retailers taking heavy strain

ECONOMIC NEWS

By Philippa Larkin - Sep 5th 2018, 10:14

South African retailers across the board are taking strain, with consumers under pressure due to an unprecedented VAT increases and record fuel prices. 

The going is not going to get any easier any time soon for consumers with South Africans expecting a fuel hike next week, thanks largely to a softer rand against the US dollar.

Petrol is expected to increase by between 23 and 25 cents a litre in September, with diesel rising by around 28 cents and illuminating paraffin by 17 cents.

Retail sales growth slowed from 1.9 percent year on year in May to 0.7 percent in June. This was much weaker than the 2.2 percent market consensus, according to recent data by Statistics South Africa.

Ron Klipin, a senior analyst at Cratos Capital, said, "These factors have impacted the listed JSE retail counters, where deflation has had a major impact on food retailers, revenue growth and profits."

A prime example of this had been the Shoprite group, which had in addition to deflation has had to subsidise food prices in excess of 100 items to assist their lower LSM clients.

These interventions included R5 meal subsidies, he said. In its results for the year to July 1, the retailer reported that diluted headline earnings a share declined by 3.8 percent to 968.7 cents a share.

In addition, the group faced a perfect storm scenario due to hyperinflation in Angola, as well as strikes.

Shoprite saw the food inflation decline from 7.4 percent to around 0.4 percent .

Rising unemployment was also a factor in weak results for South African retailers.

At the higher end of the income spectrum, the Checkers division recorded sales increases in excess of 8 percent. This showed that there was a certain degree of resilience in this sector of their market, Klipin said.

Meanwhile, Woolworths chief executive Ian Moir said 2018 had been a difficult year for the retailer.

“Significant costs and disruption from transformation initiatives in David Jones and poor performance in our fashion business in South Africa have led to a result for the group that is disappointing. This was exacerbated by challenging economic and trading conditions in both markets,” he said.

Woolworths in the 26 weeks to end December endured a double hit with a R7 billion write-down of David Jones in Australia.

Klipin said again, the difference was in their food division serving LSM 8-10, which proved to be a star performer.

Klipin said Massmart was likewise impacted by deflation in all their categories including durables and foods. In the six months to end July 1, Massmart, Africa’s second largest retail group, with stories such as Game, Makro and Builders’ Warehouse, came under pressure. During the period Massmart reported that its like-for-like sales increased by 1.9 percent to R41.6 billion.

In its results, Massmart cautioned that the current market weakness and deflation in the domestic economy was expected to persist. But Klipin said Mr Price seemed to be more resilient, with their merchandise offer in value for money.

Mr Price said that during the first four months to August 4 of the financial year ending 30 March 2019, the group recorded growth in retail sales and other income of 7.4 percent to R7.4bn over the corresponding period in the prior year. The group expected a very challenging environment to prevail until economic growth starts to revive.
iol 

Read more about: tax | sales | sa economy | retailers | retail | economy

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