Johannesburg - South Africans may have less money at their disposal for the nice-to-haves, but that hasn't stopped them from giving their loved ones gifts and stocking up for a good time over the festive season.
This is the word from two of the country's biggest retailers, Pick n Pay and Woolworths, who say that consumers are still buying, but are more careful with how they spend their money.
"We are amazed at how resilient the consumer has been," Pick n Pay's financial director Dennis Cope told Fin24.com. "The general sentiment a few weeks ago was quite downbeat, with the market anticipating a big slowdown, but trade has been robust, particularly in the last week."
South African retailers, like their international counterparts, have had to weather a difficult year, with the local sector officially entering recession in November following two consecutive quarters of negative growth, according to Statistics South Africa.
Profits at retailers of clothing and furniture have been hardest hit as debt-laden consumers have been more cautious about spending on non-essential items.
Retailers of these durable and semi-durable goods broke with tradition and staged pre-Christmas markdowns in a bid to boost lagging sales.
Consumers have not stopped spending altogether, and instead are becoming more discerning.
"As expected, the inflationary environment is spurring customers to spend more cautiously," Woolworths said in response to questions from Fin24.com. "Customers are also, increasingly, favouring more affordable product at Woolworths," it said.
It's set to release a formal Christmas trading update to the market early in the new year, together with guidance on performance for the six months to end-December.
"Anticipating this focus on 'value', Woolworths has sharpened prices considerably in core categories. Basic lines are now extremely competitively priced. This pricing strategy has been supported by regular promotions. However, the focus on value is paired with Woolworths' strong commitment to innovation, quality and style.
Woolworths said that in its clothing division, prices rose by an average of 7.3% for the financial year, down from a high of 9.6% at the half year. "This is indicative of the stronger focus on value, especially at opening price points."
Pick n Pay's Cope noted that sales in some of the retailer's clothing and general merchandise lines were flat, with consumers "behaving in a far more savvy fashion".
"Customers have been purchasing gift items which in some cases have a dual purpose. Lines such as character-branded toiletries have shown growth, and parents bought back-to-school necessities as gifts."
Consumers in some areas are taking more time and trouble to look at unit price and pack sizes, says Cope. "Our shelf labels show the unit price per kilogram, and smaller packs are sometimes cheaper than large packs, which is counter-intuitive to some. Customers are being wiser and sometimes buying less quantity rather than 'trading down'."
Retailers say there's also evidence that South Africans who would travel abroad for the holidays opted to stay home: "More people have stayed in Johannesburg and Pretoria than in past festive seasons. We sold many more braai accessories, outdoor games, pool accessories and much more meat than previous years, indicating that people stay at home more."
Cope says the softening of international travel has "probably been offset by some people going to coastal areas". Also, stores were busier than expected two or three days before Christmas, "which may point to people taking their holidays later or making their holidays a bit shorter".
2009 looking up
Both Woolworths and Pick n Pay say there are early indications that the consumers' financial situation could improve in 2009.
Pick n Pay's Cope says he is "quite bullish" on prospects because tighter lending rules due to the National Credit Act, high interest rates and the high inflation experienced in the last few months, have already had a dampening effect on consumers. This has made the anticipated slowdown less painful.
"Fuel prices are down about two-thirds from their high in the US, with the dollar price of oil coming in below $40 a barrel now. Pair that with a rand-dollar exchange rate which has improved slightly, and we should see petrol prices here fall materially, which has to be positive. The drop in interest rates will also increase disposable income."
Woolworths expects that trade "will likely remain tough in the coming year", but says it's "well placed for future growth, when a less pressured consumer increasingly turns back to innovation, quality and great value rather than purely to price."
- Fin24.com