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Retailers expecting better sales during this festive season
Retailers expecting better sales during this festive season

Retailers expecting better sales during this festive season

RETAILER NEWS - Sep 30th 2014, 09:49

For most of the year retailers targeting the lower-middle income segment have withstood the worst of weak consumer demand, as ever-escalating living costs and a debt overhang caused by a glut of unsecured credit crimp household budgets. 

Sector bellwether Shoprite reported its slowest annual profit growth in 15 years, and credit players such as Truworths and JD Group put in place stricter lending criteria as customers struggled to pay store accounts.

There is, however, a glimmer of hope, with a majority of retailers in the EY/Bureau for Economic Research (BER) retail survey expecting business conditions and sales growth to improve during the festive season.

For the first time in two-and-a-half years, more than 50% of the retailers surveyed by the BER reported they were satisfied with prevailing business conditions, with the business confidence level improving to 60 index points during the third quarter, from 49.

While strikes in the metals and engineering sectors in the first half of the year and during July are likely to weigh on economic growth, and hence disposable income, a slight deceleration in the consumer price index inflation rate, and the 67c drop in the petrol price this month, should bolster the purchasing power of households and aid retail sales volumes in coming months.

After especially weak retail sales growth during the strike-hit second quarter, results from the survey already point to a modest recovery in volume growth during the third quarter. The fieldwork for the third-quarter survey was conducted between August 4 and September 1.

Retail sales data from Statistics SA showed that volume growth recovered to 2.4% year-on-year during July, supporting the BER’s latest survey results.

The improvement in sales volumes was mainly concentrated in hardware, paint and glass, and semidurable goods such as clothing and footwear.

EY retail and consumer products sector leader Derek Engelbrecht said last week that factors such as a dramatic slowdown in unsecured credit extension, waning disposable income growth and rising inflation have been weighing on retail sales volumes in general over the past two years. However, the effect of these factors were compounded by the record-long strike in the platinum sector during the first half, he said.

Shoprite was scathed by the five-month platinum strike, recording more than R1bn of lost sales.

Wal-Mart-owned Massmart’s stores in towns immediately affected by mining unrest and regions traditionally associated with migrant mine labour, noted significant sales declines.

"The strike-affected consumers were forced to postpone their purchases of hardware, clothing, and footwear. The end of industrial action in the platinum belt may have alleviated some of the downward pressure on these categories during the third quarter," Mr Engelbrecht said.

Though the improvement in clothing and hardware sales volumes was good news, sales of nondurable goods such as food and cosmetics remained under pressure as poor job creation, lost income due to strikes, slower growth in social grants expenditure and soaring food and fuel prices continued to weigh. As durable goods such as furniture are usually last on the list when money is tight, sales volumes in that category continued their downward trend in the third quarter.

Mr Engelbrecht believed that the growth in retail sales volumes would remain subpar given slower growth in government spending, relatively weak job creation prospects in the near term, more downward pressure on household unsecured credit extension following the collapse of African Bank Investments Limited, and the recent and expected further interest-rate hikes.

The outlook for "the South African consumer" depends critically on income levels, according to Barclays Africa economists Peter Worthington and Miyelani Maluleke. Poorer consumers are, arguably, taking considerably more strain than wealthier consumers are, even though interest-rate hikes can affect the latter more.

"It seems likely to us that lower-income South Africans will have to bear the brunt of any consumption slowdown, given their reduced access to bank credit, and weak employment prospects, although the sharp decline in food price inflation will provide some relief at the margins," they said.

Mr Worthington and Mr Miyelani said the pace of real household consumption spending would remain subdued in the second half of the year, but will begin to accelerate modestly in 2015.From DFM Publishers (Pty) Ltd 

Read more about: truworths | south africa | shoprite | jd group

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