Mixed bag for retailers in South Africa
Although sentiment amongst retailers is improving, confidence is still incredibly low.
This is according to the Bureau for Economic Research’s (BER’s) latest quarterly Retail Trade Survey, which showed that retailer confidence grew from 20% in Q2 to 32% in Q3.
“While confidence remains below the long-term average, the index recovered most of the losses experienced during the second quarter,” the BER said.
The BER said that the low confidence reading in the quarter was likely due to inflation not returning within the SARB’s target bands and the cumulative 50 basis point increase in interest rates over the period.
Fears over increased load shedding during winter would have also hurt confidence.
“Although load-shedding remains a harsh reality, inflation has moved to within the target band so far in quarter three,” the BER said.
“For the first time since November 2021, the SARB did not hike the policy rate at its July meeting. These factors likely contribute to the improvement we see in retail confidence.”
The researchers also noted that different categories are experiencing different sentiment levels, with interest rate-linked sectors showing the biggest strain.
For example, dealers of new vehicles and retailers selling durable goods saw declining volumes.
On the other hand, non-durable goods retailers were more optimistic about sales volumes in Q3, with declining food inflation helping the sector.
Despite food inflation remaining high at 10%, respondents said that they are confident that it will continue to taper.
Semi-durable goods sales also continued their growth trend, with the BER noting that there are several reasons for the outperformance of this sector.
For instance, the strong recovery in employment – nearly half a million jobs were created in the first half of the year – boosted clothing and footwear growth.
Additionally, the 2023 Rugby World Cup in Q3 has also boosted demand for apparel, increasing sales for sportswear retailers.
Outlook
The BER added that retail sales may see further improvement in retail sales over the coming quarters if inflation stays within the SARB’s target range and the pause in interest rates continues.
“However, as long as load-shedding persists, it will continue to dampen consumer spending in the sector,” the BER said.
However, Siphamandla Mkhwanazi, FNB Senior Economist, previously said there are threats to retail sales in the near term.
“Credit data suggests that consumers are still accumulating consumption credit at a relatively faster pace, though the trend has plateaued in the last few months,” Mkhwanazi said.
“National Credit Regulator data further reveals a strong increase in the issuance of store and credit cards in non-bank sectors- both geared towards consumption.”
However, FNB said that lending standards will likely tighten as past interest rate decisions filter through the economy and limit retail actively.
Mkhwanazi said that the more stringent lending standards and declining consumer confidence will likely subdue household consumption expenditure.
Retail: Government racks up R18.5 billion in unauthorised spending
Loading ...