Stores stock up for Christmas, but consumers keep belts tight
October 19, 2009
By Florence de Vries
It Is beginning to look a lot like a gloomy Christmas as retailers across the world approach the shopping frenzy that is the festive season with a bit of quiet desperation.
If the local retail sales for August are anything to go by, we may continue to witness this seesaw of events for the rest of the year with analysts' consensus that we're in for a muted Yuletide not boding well for our consumer-based economy.
Information released by Statistics SA showed July's retail sales figures dropped by a slight 3.9 percent year on year compared with a 6.9 percent fall in June, but then August sales fell 7 percent year on year, making it increasingly difficult to extrapolate a sustained trend as visibility in retail trading remains poor.
As far as Christmas sales, which constitute a large proportion of retail groups' sales for the year, are concerned, an interesting dichotomy appears to present itself in the form of higher wages combined with higher unemployment for the year.
These two factors will determine how much (less) spend there is this festive season as consumers have continued to tighten their belts throughout the year and may opt just to "make do" at the end of the year, buying blusher instead of cars and generally trying to save as far as possible.
Meanwhile South African retailers are likely to pile on the stock as they deck the malls with holly in the hopes that wage settlements in the past year will have instilled sheer shopping mania as is de rigueur at this time of the year.
Wage hikes in the chemicals, clothing, textile and mining sectors (to name a few) followed troublesome negotiations confounded by an economic recession that left some companies floundering, but the spike in unemployment figures will continue to haunt the retail industry for some time to come.
Retail analysts believe that the trend of negative like-for-like volumes will continue for the next few months, making Christmas more muted than usual.
"Although food inflation is moderating, household and electricity inflation really seems to be hampering consumers," retail analyst Warren Buys from Cadiz Asset Management said.
Buys is also of the opinion that job losses and reduced working hours experienced through the economic downturn will make the large wage settlements we've seen this year a lot less meaningful than they seem and that it will result in total disposable income not growing very much.
Equity analyst Zahira Osman from Afena Capital said festive season sales growth this year would depend on a much-needed boost in consumer confidence as low levels of confidence generally do not bode well for discretionary spend.
Osman believes food sales growth could soften over the festive season due to lower inflation and a higher base effect while durable sales growth may be assisted by the interest rate relief and an easier comparable base in the prior period.
Even so, the 500 basis point cut since December last year could prove meaningless when taking into account labour market factors and a (still) highly indebted consumer who is likely to continue saving instead of spending money on gifts.
It may take some miracle to turn the retail sales around in time for Christmas.
Though the full effect of actual job losses (estimated to be between 300 000 and 400 000) would only be fully felt at the beginning of next year, nascent signs of a conservative consumer are becoming crystal clear.
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