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Web Exclusive: Recession showing up retailers’ strategies
September 13, 2009
By Florence de Vries
A recession can accurately determine which retailers are applying the correct strategy and those giving consumers value for money are the likely victors.
Speaking about the retail sector this year, Michael van Wyk, head of retail at Deloitte, said the sector had thus far given into value-oriented consumers who are looking for more than just a product.
Van Wyk said this can especially be seen where customers have started buying down by purchasing generic brands of goods and not necessarily trademarked goods.
“People strive to buy branded goods, but if customers associate your generic brand with that of a reliable retailer that offers good service, they will continue to buy that product,” he said.
This is already evident in the increasing sales of no-name brands at some of the country’s major retailers.
Tamra Veley, a Pick n Pay spokesperson, said the group’s private label brand was the biggest at the group and these sales have outperformed total store sales consistently over the years.
“This can be attributed to the fact that Pick n Pay brands offer guaranteed quality at a better price,” Veley said.
The private labels at Shoprite represent just over 10 percent of products in its groceries and perishables categories.
“This also puts us in a position to negotiate lower prices with suppliers of branded products,” a Shoprite spokesperson said.
Van Wyk believes people can no longer necessarily afford “nice to haves” and that retailers must have these truths entrenched in their operations to be successful.
According to a study about global retailers produced by Deloitte earlier this year, retailers will continue to concentrate on market share but that it would become harder in a recessionary environment.
“Consumers are intensely value-oriented, even more so than in the past. We are seeing this already with consumers shifting to more price focused retailers,” the study said.
Even so, retail sales for the first and second quarter of the year has shown a marked slowdown in consumer spending, which is likely a result of high unemployment figures and stringent lending requirements.
Sales in durable goods had fallen substantially while the largely defensive category of food and beverages, still constitute the biggest contributor to retail sales.
Van Wyk believes that the downward trend of retail sales is starting to slow. Chris Gilmour, an analyst from Absa Asset Management, agrees.
Retail trade sales at constant prices for June reflected a decrease of 6.7 percent compared with the previous year.
“There is bound to be a better performance in July, although it is likely not to be profound,’” Gilmour said.
According to Gilmour, retail trade sales for July is likely to reflect lower interest rates as well as increasing unemployment.
“Salary increases between 8 and 10 percent and lower inflation catalysed the last lull in consumer spending at the beginning of this decade,” Gilmour said.
He added that the South African retail sector was slowly pulling out of the recession. Looking ahead to Christmas sales, Gilmour said it was likely to be better than the previous year on the back of interest rate reductions in the past year.
“About 60 percent of this economy relies on consumer spending, so if Christmas sales do not improve, we have a problem.”
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