Consumer crunch warning for South Africa

 ·21 Oct 2022

Recent data from one of South Africa’s biggest banks, Nedbank, shows that a slowdown in retail sales reflects a population feeling the crunch, with less money to spend – and this situation is likely to persist into next year.

The bank reported that retail sales growth had slowed to 2% in August when compared to the year before. This shocked on the downside, lower than Nedbank’s forecast of 3% and much lower than the 8.9% rise seen in July.

“Retail sales continued to rebound from the riots-induced plunge in volumes in July 2021, but the underlying momentum remained lacklustre in August. Of the seven sales categories, sales growth was lower in four and negative in the remainder.”

Nedbank reported that over the three months to August, the following sales changes had been seen:

  • General dealers (+2.6%)
  • Textiles, clothing, footwear and leather goods (+8.4%)
  • Hardware, paint and glass (-5.8%)
  • Pharmaceuticals, medical goods, cosmetics & toiletries (-2.2%)

Nedbank expects stores to continue to sell fewer goods and for growth to remain lacklustre during the remainder of 2022 and into early 2023.

“High inflation and slowing economic growth will weigh disposable incomes while rising interest rates and the weak job market will keep consumer confidence generally low.”

“As a result, we expect households to be cautious of spending, especially on discretionary goods. Retail sales will draw some support from the end-of-year discounting, but volumes are unlikely to be significantly higher than over the same period in 2021.”

Lower retail sales have knock-on effects on shopping centres. John Loos of FNB Commercial Property Finance noted that shopping centres are struggling, with those that serve basic necessities such as food and groceries feeling the pressure.

Loos said that larger regional centre categories might ultimately be at a relative disadvantage compared to many neighbourhood and convenience centres in this regard because they do often have a greater focus on clothing and footwear, fashion, and entertainment of various types, along with household furniture and appliances retail, all of which can be quite cyclical and experience pressure in tougher times.

Cash-strapped South Africans are already feeling the crunch and are expected to be hit with another blow to their wallets as the annual consumer price inflation slowed marginally by 0.1% to 7.5%, but food price inflation continued to accelerate, hitting 11.9% in September, according to Statistics South Africa.

This will only further drive consumers away from spending money on expensive goods. The latest State of the retail Nation report from NielsenIQ showed that consumers are changing how they shop.

The new survey found that shoppers are:

  1. Venturing out to stores half as much as they used to;
  2. Bargain-hunting, making promo purchases;
  3. Looking for retailers that provide the best overall basket – not single-item deals; and
  4. Starting to drop costly items from their baskets.

Read: Major backlash against new laws to change elections in South Africa

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