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Retail News South Africa

Retailers feel pinch of empty wallets

Consumers have become far more cautious when it comes to spending their cash, and that's bad news for local retailers.

Retail sales data, released by Statistics South Africa this week, show that retail sales fell by 5.5% year-on-year in real terms in August, falling further than they did in July when they had declined by 4.6%.

According to experts, this trend illustrates that consumers have less and less cash to spend.

“Under current economic conditions there is no doubt that the consumer is under enormous pressure, especially in terms of monthly cash flow,” said Stanlib economist Kevin Lings.

Higher debt servicing costs, food prices, petrol prices, electricity tariffs and municipal rates have all worked together to erode households' disposable income and discretionary spending, he explained.

“There is also an increased risk of distress borrowing as consumers cling to recent lifestyles, or find they have overindulged over the previous four years,” said Lings.

Consumer spending on everything would be under “enormous pressure” for the next 12 to 18 months, he added.

That's bad news for retailers as sales are down 1.7% year-on-year in the first eight months of this year, and economists expect only a temporary rebound in retail sales over Christmas.

“Retail sales on a year-on-year growth basis will remain negative for the rest of the year,” said Gina Schoeman, economist at Macquarie First South.

“You can pretty much bank on retailers having a tough time for the next nine months.”

Schoeman added that on the equity market, retail stocks were being shunned until interest rates are cut.

While Macquarie forecasts the first interest rate cut to be in June next year, Nedbank economist Johannes Khoza predicted the cut would come two months earlier, in April.

However, he warned that consumer spending would only rebound in the third quarter of 2009.

“Christmas will be a temporary rebound, and early next year the consumer will still be under pressure,” said Khoza.

Source: Daily Dispatch

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