Recovery in consumer spending still long way off despite 'growth' figures

They say the sales growth based on figures released in the past two months has been merely inflationary and not real. Retailers who have issued trading updates include discount wholesaler, Massmart, upmarket retailer Woolworths and Africa's largest supermarket chain, Shoprite.

But analysts say SA should not read too much into these figures because the retail sector in real terms is still in negative territory and this is unlikely to change for the rest of the year.

“Generally, sales have deteriorated in the past six months,” says Nedcor Securities analyst, Syd Vianello. “People are saying that in the last two months sales have picked up, but that is because April was a difficult month. Things are going to be bad in October and November.”

Clothing and food retailer Woolworths last week reported an increase in sales of 7.2% in the 52 weeks to June, with clothing and general merchandise inflation at 2.5% and inflation on food at 8.2%.

The retailer attributed its growth to the reduction in interest rates which it said had brought some relief to its core middle to upper income market segment. This group had shown signs of recovery in the fourth quarter of its trading period under review. An aggressive price cutting programme had also helped boost sales.

Similarly Shoprite, which caters mostly for the lower end of the market, said it managed to increase sales by 24.5% in the 12 months to June.

On the other hand, Massmart expected a loss of R78m in the year to June owing to weakened currencies in the African countries where it operated. Locally, the group said sales grew by 10.4% with inflation estimated at 11.4%.

“There isn't evidence that things are wonderful, the outlook for this year is still not good,” says Citigroup analyst, Dean Ginsberg.

“It is the nominal term sales that are up, but the real term sales are actually down,” he says.

The retail sector could expect to start seeing a positive swing only next year, says Ginsberg.

Retail trade sales, at constant (2008) prices, for the three months to May this year fell by 5.3% compared with the same period last year, when sales in the same period decreased by 0.1 %.

Retail trade sales for May decreased by 4.2% compared with the same month last year. This was a slight increase compared to retail sales for April, which had fallen by 6.7%.

The Bureau of Market Research (BMR) has predicted a growth in retail sales of only 0.6% this year. The sector grew at 9.6% and 5.1% in 2006 and 2007, only to drop by 0.7% last year.

Vianello attributes the slowing retail trade sales to rising unemployment mainly due to retrenchments. “Things are looking fairly depressed,” he says.

Prof Deon Tustin, BMR executive researcher, says the retail sector is a slow industry and that recovery will take a while longer than other industries. Many consumers are still under pressure.

However, economist Mike Schussler believes the sector seems to be turning the corner. “We are getting to a point where we are seeing an increase in retail sales, (not) just in durable items.”

Schussler acknowledges there is still pressure but the sector is “certainly making strides out of the negative numbers. Retail sales month on month have been low for a while and recovery will be a bit slow in certain categories.”

He says recovery will be led by food and other basic daily products; furniture and electrical goods sales will come only later.

According to the Statistics SA's retail trade sales for May, retailers specialising in food, beverages and tobacco are slowly moving out of the negative territory having reported a 0.6% increase.

Source: Business Day

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