Retail sales up, but quarter showing 'worst since financial crisis'

Johannesburg – Retail sales were down 1.1% for the quarter ending in March 2017, Statistics South Africa announced on Wednesday.

Retail sales for March 2017 were up 0.8% for the year, and up 0.3% from February 2017.

The sector performed slightly better than market expectations, said Stefan Salzer, partner and managing director at Boston Consulting Group South Africa. However, this was still below 1% and the impact of the downgrade is expected to weigh heavily on consumers.

“It will put pressure on the currency and import prices for clothing and durable goods.” Salzer said retailers would likely raise prices to protect their margins. However, research by BCG has shown that consumers are still aware of pricing, which influences their purchasing decisions.

The statistics showed that food, beverage and tobacco sales increased the most for the month, up 14.8%. This was particularly for specialist, smaller stores like butcheries and convenience stores. This contrasts with “muted” development at big supermarkets and hypermarkets, which contracted slightly by 0.8%, said Salzer.

The lipstick effect

Other major contributors to the growth include pharmaceuticals, medical goods, cosmetics and toiletries, up 7.2%. This is part of the “lipstick effect”, said Salzer. In times of crisis, when shoppers are pressed for cash, they spend money on small luxury items which they can afford, like lipstick.

Household furniture, appliances and equipment sales increased by 8.2%.

However, declining sales in textiles, clothing, footware and leather goods as well as general dealers dragged down quarter results.

Salzer explained that when consumers are under pressure they would rather spend money on food, rent and electricity than clothing. “People are holding back on spending on the category. Overall it’s an indicator of the bad state of the economy and the pressure consumers feel.”

Sales have slowly been making a recovery. In January the sales value was recorded at R72m. This has ticked up to R77m in March.  

But the quarter’s performance is the worst since the global financial crisis, said Stanlib chief economist Kevin Lings. The decline in retail sales for the quarter is an “exaggeration” following the sales boost in the last quarter of 2016, brought on by Black Friday sales in November.

Lings added that retail sales are expected to remain weak going forward, due to recent tax hikes and weak confidence levels as a result of political and economic uncertainty.

Possible private sector job losses could impact retail spending, increasing a risk of recession in consumer spending.  “This, in-turn, would severely undermine tax revenue estimates, leading to further fiscal slippage and the potential for further rating downgrades.”

Sanisha Packirisamy, economist at Momentum Investments and Savings echoed these sentiments. “Consumers are still feeling financially exposed,” she said.

“Households have become increasingly glum over the economic outlook over the next year and continue to rate the present time as inappropriate to buy durable goods.”

Momentum expects economic growth to recover to 0.9% in 2017. Domestic demand for goods is expected to remain pressured. A possible improvement in exports could support a recovery. 

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