Struggling South Africans happy to spend money on shoes, clothes

Retail sales of shoes and clothing have increased. Picture: RDNE Stock project/Pexels

Retail sales of shoes and clothing have increased. Picture: RDNE Stock project/Pexels

Published Jul 19, 2023


South Africans have not let financial pressure stop them from buying clothing and shoes.

Despite retailers across most categories reporting a drop in sales in the current economic climate, clothing and footwear retail recorded a 10,3% real year-on-year increase in May.

“Even the less cyclical General Dealers – which sell a variety of merchandise, saw a decline of 3,7%,” says FNB commercial property economist John Loos.

General dealers have been not only impacted by rising interest rates and a weakening economy that is pressuring consumer disposable income, but also by the recent surge in food price inflation. The latest inflation figures for June, however, show that inflation has come down for some food categories, so this could hold some good news for these retailers.

Food and beverage as well as pharmaceutical retailers both recorded a 4% drop in sales.

But the situation is more bleak for home-related retailers which saw sales of household furniture, appliances, and equipment decline by 5,8%, and hardware, paint, and glass sales drop by an even greater 8,7% year-on-year.

Loos says more significant drops in these two latter categories makes sense, given that many home-related purchases and maintenance items are postpone-able in tough financial times, such as the present.

FNB economist Siphamandla Mkhwanazi states that the relative outperformance by clothing retailers is consistent with the National Credit Regulator data that shows a strong increase in the issuance of store cards.

He adds: “Credit data suggests that consumers are still accumulating consumption credit at a relatively faster pace, though the trend has plateaued in the last few months. However, we expect that lending standards will tighten further as the cumulative impact of past interest rate decisions filters through, suggesting less support for shopping activity.”

Furthermore, salary growth expectations have also moderated, in contrast to inflation and interest rate expectations. These factors, he says, combined with depressed consumer confidence, corroborate our view of subdued growth in household consumption expenditure.

This keeps the pressure on for retail shopping centres, likely sustaining the recent slowdown in growth in retail centre trading densities seen in MSCI Q1 numbers, Loos says.

All five main shopping centre categories – super regional, regional, small regional, community, and neighbourhood – showed slowing trading density growth as at Q1 2023, following on the post-lockdown recovery through 2021/22. Three of the five centre categories already saw real (inflation-adjusted) year-on year declines in trading densities in Q1 2023.

The good news though is that, as at Q1 2023, TPN tenant data had not yet shown any recent deterioration in retail tenant rental payment performance, with 73,4% of retail tenants in good standing. However, he points out that further declines in real retail sales value subsequent to the Q2 – as the full impact of interest rate hiking and economic slowdown has yet to be felt, leads us to expect that this tenant payment performance will deteriorate in the second half of the year.

“This, in turn, is likely to keep the pressure up on base rental growth in the retail property sector, with landlord ‘pricing power’ weak as tenants battle under the pressure.”

Loos notes that the retail property sector is not only pressured by declining real retail sales, but is battling with above-inflation municipal rates and tariff hikes in certain instance. At the same time, it is also required to seek costly electricity alternatives as power supply reliability deteriorates.

MSCI data from Q1 2023 has already shown year-on-year decline in retail sales across all five centre size categories.

“In short, the declining May 2023 real retail sales numbers point to a likely continuation of the recent weakening in the retail property market on a national aggregated basis,” he says.