This is how rich South Africans are spending their money
South Africa has seen a substantial drop in retail sales, with wealthy South Africans spending less on luxuries and focusing more on essentials.
According to Stats SA, South Africa’s retail trade dropped 1.4% year-on-year (YoY) in May – the sixth consecutive drop in YoY retail activity. For the three months ending in May, retail sales were 1.5% down in real terms compared to the same period in 2022.
The sector that was the hardest hit by the shrinking retail sales was food, beverages and tobacco (-5.5% year-on-year), with food inflation remaining incredibly high over the period.
However, textiles, clothing, footwear and leather goods were resilient, showing 6% YoY growth – the only sector to show real growth.
Eighty20, a consumer strategy, analytics and research business, said that driving business growth in South Africa is challenging due to high inflation, rising interest rates and intensified load shedding.
“Many factors are putting pressure on the consumer. This is best observed in the sharp increase in credit default over the last six months. Particularly worrying is the increase in default for home loans and vehicle finance accounts (VAF). Together these two types of credit account for more than 70% of total loan balances,” Eighty20 said.
To boost economic growth, it is key to understand that South Africa has an incredibly varied population. South Africa has a population of 60.6 million, with roughly 43 million adults (over the age of 15). Only 36% of adults are working, and more than half don’t have a matric.
“The 2.5 million consumers in households with a monthly income greater than R40,000 have 1.5 times the spending power of the 29 million consumers in households earning less than R10,000,” it said
Eighty20 thus provided detailed outlines of how the four earnings segments feel about the retail segment:
The rich
This segment represents the wealthiest 5% of the country and has close to 3 million people who are responsible for roughly R1.5 trillion in annual expenditure.
Two-thirds of this segment comprises of families with an average age of 44 and a personal income of R45,512 per month.
This affluent segment holds more than half of all home loans and VAF in South Africa, but 76% of home loans and 69% of VAF by value.
Nevertheless, growth in credit products has only increased by a low 11% YoY, Eighty20 said.
“Overall, Heavy Hitters are conscious about their spending and are increasingly planning and budgeting their expenses. This segment is prioritizing groceries, with luxuries or treats coming in second,” it said.
“This segment views big shopping centres as a huge temptation – so the focus is increasingly on planned shopping trips within close proximity to where they reside.”
“Big shopping malls are still popular for end-of-season sales and entertainment. They also love loyalty programmes where there is a cross-pollination of retail and fuel.”
Middle Class
The roughly 4 million people in this segment spend roughly R754 billion annually.
The average age is 40, with a monthly personal income of roughly R14,591 and a household income of nearly R25,000.
Although they hold 30% of all home and VAF loans in South Africa, they only hold 20% by value.
Eighty20 said this middle class is financially pressured against the current economic climate, with high safety and security fears.
“The middle class is also opting to do a lot more online shopping as it’s more convenient. These customers are shopping for smaller baskets – less luxuries and more essentials – careful to account for load shedding in their product choices,” it added.
“Online shopping is viewed as highly convenient as they don’t need to leave home, they are getting the best deals which saves them both time and money. They value Pick n Pay Smart Shopper, Checkers Xtra Savings and other loyalty programmes, especially those with fuel partnerships.”
Mass Credit
There are roughly 10 million people in this segment, which is responsible for roughly R640 billion in annual expenditure.
This segment has an average age of 36 and an average personal income of slightly above R5,175 a month.
Approximately 80% of this segment have retail store accounts, whilst 17% own a credit card.
The segment is currently focused on survival and is shopping less often, instead looking to bulk deals. However, their ability to buy in bulk has been negatively affected by load shedding.
“This segment is also downgrading brands, cheaper options are being added to their shopping carts. The Mass Credit market is less loyal to retailers, as finding the best deal is crucial,” Eighty20 said.
“They are visiting malls less frequently and are extremely focused on comparative shopping. Loyalty programmes have become a huge part of their shopping behaviour, and they are affiliated to almost every loyalty card.
“Loyalty programmes are a means of financial relief, and they find themselves reliant on all notifications for the best deals via SMS, social media or apps.”
Students and Scholars
There are almost 8 million people in this segment who are responsible for roughly R82 billion in annual expenditure.
The average age is 18, and the average personal income is just above R2,100 per month.
This segment has incredibly little credit – mainly retail and unsecured – with the rate of new defaults over double the overall population.
Compared to older generations, this segment faces less financial pressure due to fewer obligations and lower expenses.
“They prefer in-store shopping in order to buy the best products as opposed to online app deals, not price-sensitive deals. In terms of loyalty, the fuss-free ones like Seattle Coffee are a winner as it requires very little effort and spending per unit is low,” Eighty20 said.
Overall, it is clear to see that the difficult economic environment has impacted shopping in South Africa in terms of the number of shopping trips, basket size, and the focus on essential grocery items.
“Comparative shopping and bargain hunting is driving a lot of retail behaviour at the moment, with retailers needing to be smart with their promotions, ranging and online presence to attract additional and retain existing spend,” said Steve Burnstone, CEO at Eighty20.
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