Retail sales lag market expectations

Cape Town - Retail trade sales increased by 2.8% year-on-year in March 2016 compared with 4% the previous month, considerably lower than the market expectation of a 3.6% y/y increase in March, official data showed on Wednesday.

It was the first dip under 3% since May last year, when load shedding limited retail activity, said FNB analyst Jason Muscat.

He said the mild deceleration can also be attributed to the number of public holidays in March this year relative to 2015.

Quarter-on-quarter, retail trade sales rose by by 3.4% in the first quarter of 2016, compared with the first quarter of 2015.

Statistics South Africa said positive annual growth rates were recorded for general dealers (6%); retailers in textiles, clothing, footwear and leather goods (4.9%); retailers in food, beverages and tobacco in specialised stores (0.3%); and retailers in pharmaceuticals and medical goods, cosmetics and toiletries (0.3%).

The main contributor to the 2.8% increase was general dealers (contributing 2.5 percentage points).

Seasonally adjusted retail trade sales increased by 0.2% month-on-month in March from 0.4% in February and -0.8% in January 2016. In the first quarter of 2016, seasonally adjusted retail trade sales went up by 0.2% compared with the previous quarter.

Nevertheless, said Muscat, the first quarter of 2016 registered a 3.4% y/y expansion in retail sales which will buoy first-quarter GDP growth, offsetting contractions in mining and manufacturing.

Food and beverages grew 0.3% y/y, as did the pharma category. Furniture sales contracted by -1.9% y/y while hardware registered a sharp drop of -5.1% which Muscat suspects is due to the high base of 2015 when consumers were bracing for load shedding.

"We expect that retail trade sales will continue to trundle along in the low single digits for the balance of the year, but rising unemployment, inflation and interest rates all pose downside risk to our view."

Hanns Spangenberg, analyst at NKC African Economics, said they expect pressure on retailers to intensify as the combination of drought-induced higher inflation and tighter monetary policy conditions makes its presence felt on consumers’ pockets.