Rise in retail sales seen as a quirk

FMCG SUPPLIER NEWS

IOL Business - Jul 19th, 07:59

Retail sales shot up in May after April’s growth was the lowest since 2009, but analysts cautioned yesterday that the growth was not sustainable in light of the realities of strikes and sluggish gross domestic product growth. 

Statistics SA data showed yesterday that retail sales grew 6.2 percent year-on-year at constant prices, up from a revised 2.2 percent in April.

Major contributors to the positive number were textiles, clothing, footwear and leather goods, whose sales surged 12.9 percent; general dealers, up by 5.9 percent; and dealers in hardware, paint and glass, which lifted sales 5.6 percent.

All sectors except furniture and household appliances and equipment recorded increases.

On a month-on-month basis, retail sales for May grew 1.8 percent after narrowing by a revised 0.4 percent in April.

“In general this is good for the South African retail industry. But we know that the lower living standards measure individuals are taking a lot of strain in the current climate,” Gryphon Asset Management analyst Cassie Treurnicht said.

Treurnicht said that the disappointing numbers released by Shoprite this week indicated how badly the consumers at the lower end of the economy were doing.

Despite the surprisingly positive retail sales growth, overall the economy was not in great shape, Treurnicht said. “The strikes are impacting the economy. Soon the negative sentiment will spread to the industrials and the financials.”

Stocks of South African retailers slumped on Tuesday after Shoprite said its sales growth moderated to 10.4 percent in the six months through June, compared with growth of 13.8 percent in the previous year’s first half.

Smaller rival Massmart fell 4.31 percent on the day while Woolworths lost 3.43 percent.

Despite the positive retail sales data yesterday, Shoprite fell a further 1.1 percent.

Wildcat strikes in the mining sector have caused volatility in the rand and the economy. The disputes are still largely unresolved.

Stanlib chief economist Kevin Lings said in a note that the unexpected rebound in sales growth was unlikely to be sustainable and that consumer spending was losing momentum if seen against past trends.

Stagnant consumer income coupled with a range of price increases, including petrol, water and electricity, had resulted in an erosion of people’s spending power.

Lings said between March and May this year, retail sales grew only 0.05 percent when measured quarter on quarter. “This is well below the growth rates achieved in most of 2012, despite the latest surprise increase in sales.”

A note from Nedbank’s economics research group echoed Lings by saying that the sharp rise in retail sales “is unlikely to be sustained in the months ahead as a combination of the poor economic outlook, weak consumer confidence, high inflation and the struggling job market will continue to contain household incomes and therefore spending”.

Investec group economist Annabel Bishop said the retail number was an anomaly and was unlikely to be repeated this year. “We continue to expect no change in interest rates this year, with the chance of an interest rate cut toward the end of the year, if the economy does not change,” Bishop said.

Earlier this week, the SA Savings Institute released data showing consumer savings had been consistently low while household debt was at 75.4 percent of disposable income. © Independent On-line 2013. All rights reserved