Festive spending wilts as fear of future bites
Tourism suffers as consumers stay home Food sales buoy supermarkets
January 7, 2009
By Tom Robbins
Cape Town - Consumers cut discretionary Christmas purchases and many chose to stay at home over the festive season as they braced themselves for a tough year, retailers and analysts have said.
While falling fuel prices and interest rates will put more money in consumers' pockets this year, the spectre of retrenchments is expected to scare consumers away from returning to the free spending of the retail boom years.
Supermarket group Pick n Pay said festive season sales of general merchandise and clothing were down on a year ago, but food purchases had lifted total sales beyond expectations.
This is a continuation of a countrywide trend highlighted by Statistics SA. Last month the agency said overall retail sales at constant prices had fallen 2.2 percent year on year in the 10 months to October, but supermarket groups' sales held up due to the high proportion of necessities on their shelves.
Pick n Pay finance director Dennis Cope said that while sales of non-grocery items generally fell, braai accessories, outdoor games and pool toys rose. This was evidence that many had stayed at home, channelling good-time spending to fun in the back yard rather than travelling holidays, he said.
In general, consumers opted for practical gifts such as school goods and branded toiletries.
Commenting on consumer prospects this year, Cope said food cost hikes were starting to level off as commodity prices dropped. There had been a dip in the prices of some food products that were largely made up of only one raw material, such as cooking oil and canned tuna.
A further fall in fuel prices today and expectations of more interest rate decreases "must cushion the global slowdown we are all feeling", he said.
"But I will not be so bold as to say that this will push up volume sales."
South Africans could be thankful that a combination of the implementation of the National Credit Act in 2007 and already high interest rates had spared them from the same extent of easy credit spending as in developed countries, resulting in a less marked credit crunch here, Cope added.
But commentators are at a loss to predict how severely the global economy's worst downturn in a generation will affect sales. Mineral commodity export prices have already fallen, prompting retrenchments in the mining sector and dragging economic growth down.
Shoprite, one of the most upbeat retailers before the season, said sales were higher than budgeted. Turkey volumes rose 10 percent, but marketing director Brian Weyers put this down to market share growth rather than higher consumer spending.
Barbara Price-Hughes, a research analyst at BoE Private Clients, said that while no hard numbers on festive season spending were available yet, the defensive food and drug retail sectors appeared to have "done all right".
Price-Hughes said tourism spending appeared to be a major victim of stretched household discretionary budgets.
Value clothing retailers, such as Mr Price, had been busy, she added. Electronic goods sales had been boosted by video game products, which continued to be in vogue.
Jeanine van Zyl, a retail analyst at Old Mutual Investment Group South Africa, said she expected discretionary buying to be "slightly" down in volume terms, but rand spending would have been up.
"People are reluctant to cut spending on Christmas presents, but the real retail sector picture will only emerge when we see January and February sales numbers," Van Zyl said.
On the positive side, recent petrol price cuts would provide significant relief to consumers.
But Van Zyl thought most of the extra funds would be used to reduce debt rather than to raise spending. "I think people are getting quite frightened with job security worries rising."
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