Cash retailers ‘set for jollier Christmas’
bdlive.co.za - Nov 11th 2014, 09:49
The strain on disposable income is likely to yield another mixed bag at Christmas with cash-based retailers such as Mr Price and Woolworths likely to fare better than credit-reliant players such as Truworths.
Many households are battling to make ends meet as a moderation in income growth, the curbing of rampant unsecured credit growth, debt and a rise in the cost of living slash spending.
A disappointing Truworths update last week confirmed the consumer spending slowdown — with growth of only 4.7% between June 30 and November 2, compared to 7% previously.
"It (the update) is a reflection of the constrained consumer environment, particularly from a credit point of view," Daniel Isaacs, equity analyst at 36ONE Asset Management, said.
"Truworths don’t have significant cash offering, they are very credit dependent.… The next-biggest credit retailer is The Foschini Group (TFG), but they have cash offerings in their stable … Christmas could very well still be good for the cash retailers but the credit guys are obviously taking a bit of strain," Mr Isaacs said.
At TFG, cash sales as a proportion of the total sales rose to 44% in the half-year to end-September, from 40% a year earlier. A few years ago, the retailer sold over 70% of its merchandise on credit.
CEO Doug Murray said the increasing contribution of cash sales was because of its focus on driving cash versus credit turnover through diversification of its product categories and broader living standards measure appeal. Credit sales over the period grew only 2.5%, while cash sales rose a whopping 20.3%.
With more brands like Totalsports, @Home, Due South, Fabiani and G-Star, whose customers typically buy in cash, TFG’s shift away from being a mass-market credit retailer makes the group more defensive in tough credit cycles, such as SA is in now, by reducing the effect of store card defaults.
Abri du Plessis, chief investment officer at Gryphon Asset Management, said, "Growth is slowing and the government can’t roll out more social grants or employ the same amount of people as in the past, and there are strikes.
"We are sitting in a rising interest rate environment, with a weakening economy, so it’s a double-edged sword for the consumer, who is already a lot more geared than last year or the year before, thanks to the micro-lending environment.
"I think it’s going to be a very tough Christmas, especially for credit retailers … they’re going to struggle. Cash and food retailers should have a reasonable Christmas," Mr du Plessis said.
Fast-fashion value retailer Mr Price has continued to buck the broad retail slowdown. Earnings excluding one-time items in its half-year to September 27 climbed as much as 24%.
Sasfin Securities senior equity analyst Alec Abraham believes the group has been a beneficiary of shoppers "buying down".
Analysts say the group has taken market share from beleaguered Edgars, which is in the midst of a turnaround, and from rivals Truworths and TFG. Similarly shielded from the prevailing retail gloom is Woolworths. The group’s "good, better, best" strategy is a tiered offering that has created a bond between the brand and its customers.From DFM Publishers (Pty) Ltd
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