Debt makes shoppers think thrice
bdlive.co.za - Dec 2nd 2014, 11:09
Retailers are unlikely to experience much festive cheer this year as the strain on disposable income persists.
While tills will still jingle this Christmas, the festive-season trading period is likely to offer a mixed bag for retailers.
High levels of household debt, rising living costs and unemployment have weighed on consumer spending and if the year’s poor retail sales are anything to go by, a bleak Christmas trading period lies ahead. ETM Analytics economist Jana van Deventer says the broader outlook on the domestic retail sector is still quite discouraging.
"Credit data out (last week) showed household loan growth still to be particularly subdued and overall levels of household credit health are also still weak … so in terms of credit consumption demand it’s not looking too good," Ms van Deventer said.
With credit-active consumers struggling to service their debt timeously, the proportion of credit-active consumers with impaired records is elevated at 45%, according to data from the National Credit Regulator. This has seen credit-reliant players such as Lewis Group and Truworths fare worse than Mr Price and Woolworths.
The slowdown in unsecured lending, which gave retail sales a significant lift prior to last year, has been a key contributor to the drop in spending.
For most of the year, retailers targeting the lower-middle income segment have also withstood the worst of weak consumer demand.
Sector bellwether Shoprite reported its slowest annual profit growth in 15 years. Although the group’s core target market is in a slightly better position than last year, when labour strikes and the pullback in unsecured lending slashed spending, it says it expects "fair" trading conditions in the run-up to Christmas.
Christmas trading will be slightly better in volume terms than last year, and consumers are likely to spend money on things "which make them feel good in the moment", retail and consumer products sector leader at EY Derek Engelbrecht says.
"Semidurables (clothing and footwear) and the service industry should benefit … a family dinner or some clothes for the kids, an outing or two… things that don’t cost a bomb.… So, a shorter link between the money they spend and the joy they get from it," he says.
He adds that competition has intensified among retailers.
"Mr Price, for a number of quarters, has reported turnover growth in excess of what most people would have expected, and that’s because they continuously innovate in so far as their value offering is concerned … the overall size of the retail economy is not growing and as a consequence you have to be smarter," Mr Engelbrecht says.
Consumers will also be wary of spending considering the commitments that the month of January usually brings — school fees, uniforms, school stationery, and a longer month.
Instead of splashing out on big-ticket items such as appliances and furniture, shoppers are also more likely to spend their hard-earned cash on food, toys, technology gadgets, hardware, and do-it-yourself (DIY) products.
Pick n Pay’s GM of its general merchandise buying division, Mark Wood, says the major focus of Christmas sales is likely to be on the newer, more affordable ranges of smart devices and tablets that are being developed.
"People can now buy a 3G WiFi tablet for under R1 000; where just last year it was very difficult to offer even a WiFi tablet for under R1 500," Mr Wood says.
Another notable trend this year has been the emergence of speciality coffee and related equipment, which are predicted to be popular as gifts this year.
"The lower LSM (living standards measure) consumer is turning over every rand three times, if they turned it around twice last year. It’s becoming really tough … they don’t have a shortage of choice or offering but I do think the value for money proposition is paramount," Mr Engelbrecht says.
According to Ms van Deventer, softer fuel prices could point to some relief for consumers.From DFM Publishers (Pty) Ltd
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