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Upbeat retail sales surprise market

Jul 19 2017 19:30
Lameez Omarjee

Johannesburg – Retail sales data for May were better than market expectations. Sales increased 0.9%, compared to the 0.2% expected for the month, an analyst said.

Statistics South Africa (Stats SA) released the latest data for the sector’s performance on Wednesday. Year-on-year, sales increased 1.7%, this is higher than market expectations of a decline of -0.3%, said Stanlib chief economist Kevin Lings.

The highest annual growth was reported for food, beverages and tobacco at specialised stores which was up 14.5%. Pharmaceuticals, medical goods, cosmetics and toiletries grew 5.7% and other retailers grew by 3.2%.

Lings said that the retail sector is still managing to avoid a recession. He pointed out that weak confidence, higher taxes and the delayed impact of interest rate hikes have negatively impacted retail spending.

Consumer confidence is expected to remain low due to political and economic uncertainty. “This will, in particular, have a negative impact on the decision to purchase large ticket items such as houses, cars, furniture, appliances and jewellery,” said Lings.

The retail sector is expected to remain weak, but it could continue to avoid a recession as consumer inflation slows, said Lings. Slowing inflation could suggest a rate cut by the Reserve Bank, which may ease pressure on households.

The data also shows general dealers and sales of semi-durable goods and durable goods underperformed compared to the same period (January to May) last year, according to Investec economist Kamilla Kaplan. This suggests consumers are diverting spend from non-essentials.

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

Stefan Salzer, Partner & Managing Director at Boston Consulting Group noted a shift in spending patterns when it comes to food and beverages.

“Previously, they may have done once a month shopping trips, during which they buy in bulk for the whole month, to save money. Now, they are purchasing smaller baskets, more frequently from niche retailers and specialist shops, which are probably located closer to home,” he said.

Salzer said a more stable political environment and a stronger currency could contribute to job creation, easing the pressure on consumers and ultimately benefitting the retail sector.

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