A decade high for retailers in South Africa

According to the latest Retail Survey from the Bureau for Economic Research (BER), business sentiment in the sector remains generally positive despite some emerging risks.

The BER highlighted that although certain businesses experienced a slight dip in confidence, the overall outlook for retail and motor trade indicates continued growth in the first quarter of 2025.

The report showed that overall retailer confidence edged down slightly from 54% to 50% in the first quarter, reflecting a slowdown in positive momentum.

“However, this level remains 10 percentage points above the long-term average, and the BER notes that half of the surveyed retailers remain satisfied with prevailing business conditions,” it said.

This sentiment follows the positive retail sales data from Stats SA, which showed a 5.4% year-on-year increase in the fourth quarter of 2024.

“Growth was broad-based, with semi-durable goods leading the way at 7.7% year-on-year, followed by non-durable goods at 6.5%,” the bureau added.

The BER suggests that this strong performance was supported by lower inflation, improved consumer confidence, and the impact of two-pot retirement withdrawals, which provided additional spending power.

Although retailer sentiment dipped slightly in the first quarter of 2025, the retail sales volume index remained steady on a seasonally adjusted basis.

At 8 index points, this measure is at its highest since the fourth quarter of 2014, indicating the potential for continued, albeit modest, year-on-year growth.

One of the standout positives in the BER report is the sharp improvement in the confidence of new vehicle dealers.

Confidence in this sector increased by 29 percentage points to 52%, driven by a marked surge in new vehicle sales volumes.

The BER attributes this boost to lower interest rates and the use of retirement withdrawals for vehicle deposits.

Naamsa data for January and February 2025 support this view, confirming the continuation of a sales rebound that began in October 2024.

This renewed optimism within the motor trade sector signals improving consumer health, according to the BER.

In contrast, the wholesale sector showed signs of strain.

After holding the position as the most confident sector for three consecutive quarters in the RMB/BER Business Confidence Index (BCI), optimism among wholesalers retreated in the first quarter of 2025.

Both consumer and non-consumer goods wholesalers reported a decline in confidence, accompanied by falling sales volumes and deteriorating business conditions.

The BER highlights concerns about US trade policy as a significant factor weighing on sentiment within this group.

Despite a record level of confidence among semi-durable goods retailers—the highest since before the global financial crisis—overall retail confidence was held back by declines in other categories.

“Confidence among non-durable goods and furniture retailers fell despite strong sales volumes,” said the BER.

The bureau noted that this discrepancy might stem from the sample’s skewed favour of smaller retailers, who face tougher conditions than larger grocery chains.

However, hardware retailers maintained a positive outlook, and forward-looking indicators echo the cautious optimism seen in the BER’s second-quarter building survey.

Price dynamics also shifted during this period. The BER reported that total retail selling and purchase price indices increased significantly compared to the fourth quarter of 2024, particularly for non-durable and semi-durable goods.

These adjustments are likely due to routine pricing changes and the impact of a weaker rand. The rand averaged R17.60/$ during the fourth quarter of 2024, but it depreciated to R18.40/$ during the most recent survey period.

Looking ahead, the BER’s survey results suggest that while retail and motor trade still have room for growth, the outlook for the second quarter of 2025 is more uncertain.

Although consumer windfalls from two-pot withdrawals have boosted spending, this temporary relief is expected to wane.

Additionally, the South African Reserve Bank’s decision to hold off on delivering a fourth 25 basis point repo rate cut means that additional support from lower interest rates is unlikely.

Adding to the uncertainty is the recently announced 0.5 percentage point VAT increase, which will be phased in over two years.

The BER said this tax hike is a potential headwind for both retail and motor trade confidence. With consumers still in a fragile state of recovery, the additional cost burden could weigh on sentiment in the coming quarters.

Despite these risks, the continued strength in vehicle sales remains a bright spot, suggesting that pockets of resilience persist in the South African economy in 2025.