Relief for clothing sector?

Johannesburg - Further declines in interest rates are expected to continue and these are likely to stimulate the food, clothing and textiles sectors as well as the general dealer divisions of retail sales, as was seen in January.

Real retails sales growth increased by 1.8 percentage points to 1.7% on a year-on-year (y/y) basis in January 2009 to herald the first growth in positive territory since April's 0.2% y/y. April was followed by eight months of negative growth in retail.

After reaching just under zero in December, an increase was expected in January. The combination of a decline in both interest rates and the fuel price in December, along with wage increases, contributed to increasing consumers' purchasing power during the month.

On a month-on-month (m/m) basis, however, retail sales at real prices declined by -29.7% from an increase of 31.5% in December - a decline which was evident across the board in the retail divisions. The decline is a correction from the seasonal effect of the festive season on retail sales.

The marked increase in retail sales growth in January could be attributed to increases in sales of general dealers (13.4% in December to 15.6% in January), specialised food and beverages (16.2% to 17.9%) and clothing and textiles (9.4% to 13.2%), which together make up more than 70% of retail sales.

A decline in retail inflation (from 16.5% in August 2008 to 12.3% in December) further stimulated retail sales in these three sectors. Surprisingly, furniture and appliances increased from -7.4% to -3.4%. The sector did not manage to pull out of the negatives, as expected, mostly due to interest rates still remaining relatively high.

However, the sectors weighting, at almost 8% of retail sales, still makes this a significant contribution.

Despite the positive retail sales performance in January, some sectors still recorded significant declines.

Pharmaceutical and medical goods saw a decline from 19.5% in December 2008 to 13.3% in January 2009 on a y/y basis.

Hardware goods declined more significantly from 19% to 6.8%, and all other retailers, which include jewellery, stationery and reading materials as well as sports and entertainment goods and services, declined from 18.6% to 10.1%.

Although retail sales growth is expected to strengthen further over the coming months (albeit at a slow pace) due to increases in real wages, lower interest rates and tax cuts, the rise in the fuel price since February is nevertheless likely to have a dampening effect on sales growth.

Retail Sales

Y/y % growth

Jan-08 2.3

Feb-08 4.5

Mar-08 0.0

Apr-08 0.2

May-08 -4.2

Jun-08 -1.5

Jul-08 -4.6

Aug-08 -5.6

Sep-08 -5.6

Oct-08 -2.2

Nov-08 -4.4

Dec-08 -0.1

Jan-09 1.7

- I-Net Bridge