Retailers in South Africa still struggling as consumers take pain
Retail sales in South Africa showed a modest monthly improvement in April, but they came in below expectations as consumers are still under immense financial pressure, with salaries not growing in real terms and interest rates still at 15-year highs.
According to StatsSA, retail trade sales increased by 0.6% year-on-year (y/y) in April 2024, which was weaker than consensus projections of a 1.5% y/y increase.
Investec economist Lara Hodes said that this performance is because consumers remain financially constrained, with interest rates only likely to start coming down in Q4 2024.
“Moreover, while inflation is on a downward trajectory, currently real incomes remain under pressure,” said Hodes.
April 2024 figures
Looking at the numbers, retail trade sales increased by 0.8% in the three months ended April 2024 compared with the three months ended April 2023. The largest contributor to this increase was general dealers (2.6% and contributing 1.1 percentage points)
With retail trade sales (real terms) increasing by a lower than expected 0.6% y/y in April, versus March’s 2.3% y/y lift, Hodes said that thisis largely due to the general dealers’ grouping (which constitutes over 40% of the retail basket) growing by a marginal 0.2% y/y.
This added only 0.1 of a percentage point to the topline reading.
Conversely, the pharmaceuticals and medical goods, cosmetics and toiletries category and the household furniture, appliances and equipment segment added a combined 0.5 of a percentage point to April’s headline outcome, on the back of growth of 4.1% y/y and 5.6% y/y respectively.
Additionally, “activity amongst textiles, clothing, footwear and leather goods retailers remained subdued, with sales growing by just 0.4% y/y in April,” said Hodes.
This is supported by the results of the Bureau for Economic Research’s latest retail survey, which outlined that confidence levels among semi-durable goods retailers fell markedly in Q2.24.
Moreover, the hardware, paint and glass category “continued to underperform in April, however in contrast to semi-durable retailers, confidence amongst hardware retailers climbed notably in Q2.24,” explained Hodes.
Analysis
Hodes said that while retailer sentiment increased overall in the second quarter, it is still hovering at a modest 39%.
“Consumers remain financially constrained, with interest rates only likely to start coming down in Q4.24,” said Hodes.
Additionally, Hodes said that while inflation is on a downward trajectory, currently real incomes remain under pressure, citing BankservAfrica research, which found that real take-home pay “tracked lower at R13,566 in April.”
“However, encouragingly, [BankservAfrica] stressed that owing to the suspension of rotational load shedding ‘over the past two months, the business environment has improved, enabling organisations to increase productivity and lower the cost of production,” said Hodes.
“An improved business environment will positively influence companies’ ability to pay inflation-related salary increases in 2024,” added the economist.
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