Retailers in South Africa are getting crushed – but shoppers are still spending on these items
Sentiment in South Africa’s retail sector remains downcast amid a difficult trading environment – but not all stores are down in the dumps, with consumers still spending on semi-durable goods.
The Bureau of Economic Research’s (BER’s) Retail Trade survey has recorded a 14% drop in retailer confidence from 34% in Q1 2023 to 20% in Q2 2023.
The BER said that the decline in retailer confidence is linked to the major decline in profits on the back of increasing load-shedding-related costs, high levels of food inflation and climbing interest rates.
“When asked if they expect business conditions to be better/the same/poorer next quarter, the majority of retail respondents (net negative 56%) answered that they expect conditions to worsen in the near term,” the BER said.
Load shedding is the main drag on confidence due to its increase in operational costs for retailers who must invest in backup power or buy diesel for generators.
Load shedding also affects consumer confidence and directs consumers away from retail, with consumers looking to takeaways and restaurant meals during power cuts.
Moreover, increased consumer spending on solar panels, inverters and batteries has reduced available household income.
However, not all retail subcategories are seeing the same results.
Despite retailers in non-durable goods reporting high levels of strain, semi-durable goods sales are continuing their post-Covid-19 recovery, the BER said.
It said that this may be due to the divergence in inflation trends.
Semi-durable goods are items that last up to three years after purchase and include items such as clothing, footwear, jewellery, toys, tools and garden equipment, and household textiles, among others.
These items have also not been as harshly affected by inflation.
In April, prices for food and non-alcoholic beverages experienced the ninth month of double-digit inflation (13.9%).
Meanwhile, clothing and footwear prices had only grown by 3% year-on-year.
In addition, more people are returning to the office, travelling and resuming recreational activities following the Covid pandemic.
The BER added that the Social Relief of Distress grant may have boosted sales of low-priced apparel.
For durable goods, load shedding has ironically helped maintain the sale of electrical appliances as they break down due to power surges.
The survey showed a discouraging inflation trend in regard to non-durable goods.
“The non-durable goods selling price index climbed to 90 points in 2023Q2, up from 79 in the previous quarter. The cost of investing in backup power and the depreciation in the rand exchange rate during May likely played a big role in retailers’ purchases and selling price expectations.”
Retail sales
Retail sales data for April also showed that a decline in consumer purchasing power affects the retail property market.
Data from Stats SA showed that retail sales in April saw another month of year-on-year decline in real inflation-adjusted terms.
“Actual retail sales value for April rose by 6.5% year-on-year, but when adjusted for high retail price inflation into ‘real’ terms, sales declined by -1.6% year-on-year, following on a revised -1.5% year-on-year decline in March, the 5th consecutive monthly year-on-year in real retail sales,” said John Loos, FNB’s Property Strategist.
Loos said that the economic challenges facing consumers have led to a decrease in disposable income among South African consumers.
“While interest rate hikes have contributed to a slower economy, which slows total household income growth, they also contribute directly to a consumer purchasing power constraint because the increased cost of servicing debt means less disposable income available for cash purchase of consumer goods and services,” said Loos.
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