Johannesburg - Retailers are experiencing wretched conditions, judging from the latest statistics, although the sector is one of the best performers on the JSE.
The retail index is 37% up on the low seen in March this year.
Shares in this index include Cashbuild, Ellerine, Foschini, JD Group, Lewis, Mr Price, Massmart, Nuclicks, Truworths and Woolworths.
Frans de Klerk, Sake24's analyst, says it appears that investors are looking beyond many retailers' poor sales and worse-than-expected profit margins in the hope of seeing things improve in future.
He however warns that the shares may have run too far and a correction is in the offing.
It is very likely that too much good news that will not be realised soon has been discounted.
Retailers' sales figures will remain under pressure for a while until the lagging effects of lower interest rates reawaken consumers' appetite for spending.
Food retailers' sales are the least constrained by the pressure on consumer expenditure, but analysts reckon that the turnovers of clothing and furniture retailers will improve only at the beginning of next year.
Coronation Fund Managers retail analyst Quinton Ivan says while it is still difficult for retailers to boost turnover, bad-debt provisions, which are generally calculated in advance, should meanwhile support earnings as expenditure will be considerably down.
He does expect food retailers' turnover growth to reduce in the second quarter of this year, since food inflation is much lower.
"At the beginning of the year it was about 18% and at year-end it could be as little as 6%."
Ivan believes it will take a while before the delayed effect of lower inflation comes through to drop food prices, after which retailers will again see volume growth.
Technical analysis of the index's graph shows that a phenomenon known as a "rising wedge" is being established.
A rising wedge generally heralds a correction and is often formed where an index or share has risen too quickly and too much.
It indicates that share prices are being pushed to a point where investors must decide whether buying or selling pressure dominates.
If selling pressure has the edge, there tends to be huge profit-taking and a correction is usually fast and furious.
The fact that the retail index is consolidating under the level of 23 000 points confirms that investors are reconsidering future increases.
A correction down to 21 000 or even 20 000 would not be unusual, and could lead to protracted consolidation.
Ivan says Truworths and Mr Price are the two clothing groups faring best in the recession.
Mr Price's good trading can be ascribed to its reasonably priced, fast-moving fashion items, and those of Truworths to its accurate reading of fashion trends, he says.
Truworths' fashion choices are excellent, according to Ivan.
"This counts in its favour, especially where consumers have less money to spend and prefer to use it on the most suitable items."
He reckons that consumers will start to adjust their purchases next year.
"Where Woolworths customers, for instance, have downscaled to Pick n Pay, they will probably again begin to buy from Woolworths."
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