Global Courant
Sentiment in the South African retail sector remains dejected in a difficult trading environment – but not all stores are in the groove, with consumers still spending money on semi-durable goods.
The Bureau of Economic Research’s (BER) Retail Trade survey shows that retailer confidence fell 14% from 34% in the first quarter of 2022 to 20% in the second quarter of 2022.
The BER said the decline in retail confidence is linked to the steep fall in earnings due to rising expense-related costs, high levels of food inflation and rising interest rates.
“When asked if they expect business conditions to be better/the same/worse next quarter, the majority of retail respondents (net negative 56%) responded that they expect conditions to worsen in the short term,” said the BER.
Load shedding is the main drag on confidence due to higher operational costs for retailers who have to invest in backup power or buy diesel for generators.
Load shedding is also eroding consumer confidence and driving consumers away from retail, with consumers looking for takeout and restaurant meals during power outages.
In addition, increased consumer spending on solar panels, inverters and batteries has reduced household disposable income.
However, not all retail subcategories see the same results.
Despite non-durable goods retailers reporting high levels of pressure, semi-durable goods sales are continuing their post-Covid-19 recovery, the BER said.
It said this may be due to the divergent inflation trends.
Semi-durable goods are items that last up to three years after purchase and include clothing, footwear, jewellery, toys, tools and garden equipment, and household textiles.
These items have also not been hit as hard by inflation.
In April, food and non-alcoholic beverage prices recorded double-digit inflation (13.9%) for the ninth month.
Meanwhile, clothing and footwear prices had only increased by 3% year-over-year.
In addition, more people are returning to the office, traveling and resuming recreational activities following the Covid pandemic.
The BER added that the subsidy for social relief of need may have boosted sales of low-priced clothing.
For durable goods, load shedding has ironically helped maintain sales of electrical appliances when they break due to power surges.
The survey revealed a discouraging inflationary trend with regard to non-durable goods.
“The sales price index for non-durable goods climbed to 90 points in 2023Q2, up from 79 in the previous quarter. The cost of back-up power investment and the devaluation of the rand exchange rate in May likely played a large role in retailers’ buy and sell price expectations.”
Retail sale
Retail sales data in April also showed that a drop in consumer purchasing power is affecting the retail real estate market.
Data from Stats SA showed retail sales were down another month year-on-year in April, adjusted for real inflation.
“The true value of April retail sales rose 6.5% yoy, but when adjusted for high retail price inflation in ‘real’ terms, sales fell -1.6% yoy, following a revised -1.5% year-over-year decline in March, the 5th consecutive monthly year-over-year in real retail sales,” said John Loos, FNB Real Estate Strategist.
Loos said the economic challenges faced by consumers have led to a decline in South African consumers’ disposable income.
“While interest rate hikes have contributed to a slower economy, slowing growth in total household income, they also contribute directly to consumer purchasing power constraints, as the higher cost of servicing debt means less disposable income is available to consumers. cash purchase of consumer goods and services.’ Loos said.
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