Johannesburg - Less than half of South African retailers polled in a survey think conditions for better sales over the festive seasons are satisfactory, with sales expectations being the second-lowest since 1992.
However, conditions are likely to improve by late 2009 and early 2010 as rate cuts are on the horizon.
This is according to the University of Stellenbosch's Bureau for Economic Research (BER) and Ernst & Young's Festive Season Retail Trends survey, released on Thursday morning.
Retail sales have contracted every month from May to September as cash-strapped consumers struggle to keep up with rising debt repayments following a 500 basis-point increase in the prime lending rate since June 2006, inflationary pressure on food prices and the higher cost of fuel.
"The South African retail sector is officially in recession, now that we have seen two consecutive quarters of contraction," said BER economist Hugo Pienaar.
Retailers of durable goods like furniture and electronics are least confident about conditions; while half of respondents in this sector were satisfied at this time in 2007, only 31% feel the same way in 2008.
This correlates with indications provided by listed furniture retailer Lewis, which expects conditions to remain difficult in 2009. Its competitor, Joshua Doore and Incredible Connection parent JD Group, says there are early indications that the cycle may have turned for the better as bad debts are showing signs of declining.
Clothing retailers more upbeat
Retailers of semi-durable goods like clothing bucked negative sentiment, with respondents seeing satisfactory conditions over Christmas nearly doubling from 38% to 66%.
Nedcor Securities retail analyst Syd Vianello said 2009 festive season trade is not going to be "massively robust", but there are signs that lower price-point categories like value clothing retailer Mr Price and Mr Price Home are benefiting as consumers are "already feeling that things are easier on their wallets as a result of the reduction in the fuel price, coupled with food inflation slowing down and cuts in the fuel price."
The over-recovery on the petrol price stands at about R1.65/litre. "The benefit of a cut in petrol prices is in a consumer's pocket immediately. People can afford to go out and spend on lower-ticket items where they don't have to make use of credit,and can at least bring joy to people around them.
"[Massmart's general merchandise business] Game will sell more toys and clothing, shops will sell more clothes and home furnishing shops will sell smalls, but not necessarily furniture. Building materials and car retailers will struggle."
Vianello's observation is confirmed by Massmart's trading update released on Wednesday, in which the retailer said sales for the 21 weeks since end-June have risen 13.3%.
Sales at Massdiscounters, the division which houses Game, are up 13.5% while same-store, comparable sales rose 15.8%. At the Massbuild division, which includes the Builders' Warehouse chain, same-store sales contracted by 1.2%, with price inflation at these stores running at 10.6%.
Respondents on behalf of retailers of non-durable goods like food reported a slight up-tick in expectations, with 57% saying conditions were satisfactory (up from 50%).
Signs of improvement
Pienaar said the BER sees signs of a rate cut on the horizon, but not as soon as the SA Reserve Bank's monetary policy committee meeting in December.
"We had originally pencilled in a rate cut for August 2009, but that is too pessimistic. It now looks likely that the first rate cut will be early next year, with 150 basis points to be shaved off interest rates in 2009."
Risks to interest rates remain, however. Capital inflows to the country have dried up, foreigners being net sellers of South African equities worth R52.5bn over the year to mid-November.
This means the deficit on South Africa's current account (the difference between how much the country imports and exports, with SA being a net importer) will continue to put pressure on the rand. "This could be more of a deterrent to cutting rates in order to curb demand for imported goods, although there are indications from the National Treasury that it will look at borrowing to finance the deficit," said Pienaar.
An interest rate cut will not have an immediate positive impact on retail sales; there is a lag of about 18 months before consumers react, said Pienaar.
"For this reason, the BER sees growth in consumer spending slowing further, from 7% in 2007, to 2.8% for the 2008 calendar year, to 1.5% in 2009. We expect growth to tick up again to 3.9% in 2010."
- Fin24.com