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Retailers to remain under pressure
Retailers to remain under pressure

Retailers to remain under pressure


IOL Business - Dec 13th 2012, 10:01

The fight for market share among food and clothing retailers would continue next year as retail sales were expected to remain flat while consumers battled with high debt and increased utility costs, retail analysts said last week. 

Mr Price and Shoprite were singled out as retailers who were likely to remain resilient while competitors Edcon, Pick n Pay and Massmart were expected to have to roll up their sleeves and get down to serious work in order to cope with the intense competition.

Rodger George, a consumer business industry leader at Deloitte, said that South Africa was in a flat recovery period and that retail sales growth was expected to be stable between 4 percent and 5 percent for the first three quarters of 2013. The inflation rate was at 5.6 percent in October and was expected to average 5.5 percent in 2013, and 5 percent in 2014.

“The uncertainty in the European economy has also caused confusion among consumers. This, coupled with increases in school fees, electricity and fuel… has put pressure on consumers’ disposable income,” George said.

Abri du Plessis, an economist and portfolio manager at Gryphon Asset Management, said economic indicators were showing that consumers’ disposable incomes would remain under pressure. “The tough economic environment facing Europe will definitely pull South African economic growth down with it as [the EU] remains the country’s largest trading partner,” he said.

Du Plessis said local labour unrest had negatively affected economic growth and the effect would carry over to next year.

“Some retailers such as Shoprite and Mr Price have done well with their sales, driven by the fact that they trade in the space where consumers depend on social grants and government jobs.” However, these retailers might experience some kind of stagnant growth as the government might also cut down on job creation programmes.

Chris Gilmour, an equity analyst at Absa Investment, said should consumer spending continue to slow down, retailers such as Pick n Pay, Edcon and Massmart would be the hardest hit. He, however, said Pick n Pay and Edcon were starting to show signs of improvement.

“Pick n Pay has had their troubles, but I am confident that the retailer would survive because they seem to be doing all the right things. It might take time, but they will get by.”

Pick n Pay recently opened its fifth store in Zambia and now operates 94 stores in the sub-Saharan African region.

Shoprite and Mr Price were expected to do well in the food and clothing categories. Gilmour said Shoprite was not only gaining market share locally, but about 30 percent of the retailer’s turnover came from operations elsewhere in Africa. He said should the rand continue to weaken, this would benefit Shoprite even further.

Meanwhile, Mr Price had refined its supply lines and would not be affected by the entrance of Zara and Mango.

“There has been a huge stock improvement in Mr Price and that should maintain the retailer’s performance.”

Edcon was also taking a few initiatives to refine its merchandise and working hard to reduce its operational costs. “If it comes back to relist next year, that would be an achievement and the market would like that because Edcon still remains the biggest clothing retailer by far,” Gilmour said.

Massmart, which is majority-owned by Walmart, would face a difficult year as it was still battling to gain market share in food retailing. “They will have to keep on having promotions in order to attract market share and this means their price points will suffer.”

Du Plessis said both consumers and retailers should expect a difficult year ahead.

Edcon brands Jet and Legit, which trade in the same market as Mr Price, did not appear to be reading fashion trends correctly, Du Plessis said.

Although there had been improvements from Pick n Pay, it would take time for the retailer to impress the market again. Foschini, Woolworths, Truworths and some furniture retailers would still experience good sales growth, but at a slower pace as consumers in this segment were facing high debt levels.  

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