Retail boom may end with a whimper, warns study
October 29, 2007
By Tom Robbins
Cape Town - The country's retail boom is over for now and real retail sales could fall for the first time since 1999, suggests a study by Avior Research.
While the report by the company, which provides research to asset managers, is the most negative to come from the analyst community, many agree consumers are in for a tough time until at least mid-winter next year.
Central to Avior's forecast is the view that consumers have used rising property values to remortgage their homes to repay short-term retail debt, such as store cards, and to even possibly fund purchases.
But in a cooling housing market, consumers now have less scope to borrow against housing gains and have had to contend with more expensive debt funding costs as interest rates have climbed.
On top of this shift, the easy credit provided before the stricter lending criteria of the National Credit Act kicked in on June 1 "may have led to an overindebted consumer, and [we] find early signs of stressed debt", said Avior.
Real retail sales, which factor in the effects of rising prices, may be lower in the second half of this year. However, it said the forecast was not bleak enough to suggest the nominal, or rand, value of sales would be lower than in the second half of last year.
Declines in nominal sales are uncommon in emerging markets, characterised by growing populations and rising economies. Analysts, including Avior, are indeed optimistic about the medium-term prospects of South Africa's economy.
Avior analyst Shamil Ismail projected nominal growth of 8.7 percent for this year, but said that taking into account first-half growth of 14.5 percent, this "implies growth for the balance of the year could be as low as 2 percent, a significant slowdown from current levels".
"With expected inflation of 6 percent, it means real retail sales growth may be negative in the second half," Ismail said.
"If our forecasts materialise, then it could be the lowest growth, both real and nominal, since 1999."
Avior based its view that consumers were borrowing against housing equity to pay off retail debts on the fact that housing bonds experienced the most significant growth of the various debt types.
Home loans increased their share of total debt from 49.7 percent in March 2001 to 56.7 percent in June this year.
The share of credit card debt increased from 3.5 percent to 5.4 percent, while non-bank debt, which included store card debt, decreased from 22.9 percent to 17.6 percent.
The biggest decline was in overdrafts, which decreased from 4.3 percent to 1.7 percent.
Ismail argued that with climbing fuel and food costs, consumers might find it increasingly difficult to fund debt servicing costs.
Further perturbing evidence about sales was the statement last week by retailer New Clicks that trading since August had been tough.
Durable goods retailers, such as electrical appliance sellers, are hard hit by tough borrowing conditions, but sellers of fast-moving goods, such as the company's core Clicks chain, generally hold up better, making the statement all the more worrying.
Nedcor Securities retail analyst Syd Vianello agreed there could be a retail sales decline in real terms, but did not believe it would be as bleak as Avior suggested.
"I do not know how bad it is going to get, but I believe it is going to get worse before it gets better," said Vianello.
How much worse would to a large extent depend on employment levels.
During previous bleak times there was extensive job-shedding, but he believed private sector and government investment would "keep jobs going", though some layoffs were possible.
Roy Chapman, head of financials and industrials at Sanlam Investment Management, did not expect a decline in real terms of overall second-half retail sales.
However, Chapman said he expected sales growth to surprise on the down side and "to slow quite materially, particularly durables".
He said it was possible that durables, including big-ticket categories, might go into negative territory in the second half, but doubted that semidurable sales, such as clothing, would decline.
While consumer confidence remained relatively high, Chapman said that with interest rates up to 14 percent, compared with 10.5 percent a year and a half ago, there was "no doubt it will be a lot tougher for the consumer over the next 12 months".
"And another interest rate increase is likely to make it extremely tough," he added.
|
|
