Woolworths customers feel spending pinch

Woolworths (WHL) said in a trading update for the 53 weeks to June that the middle to upper-middle income group was feeling “the pinch” of the economic downturn.

Middle-income earners, who include the so-called “black diamonds" known for their consumption expenditure, have been credited with fuelling the consumer spending spree, aided until the recent spike in interest rates by relatively cheap credit.

But the shopping spirit is flagging and Woolworths said the recent interest rate hikes, and increases in fuel and food prices, had affected spending.

“Middle and upper middle income consumers have felt the pinch of the current economic conditions particularly strongly," Woolworths said.

It said its assessment of the retail group's performance in the second half of the 53-week period to June had revealed a marked deterioration in trading conditions.

“Trading conditions in the second half have deteriorated substantially, with a further decline in consumer spending as a result of additional interest rate hikes and increases in fuel and food prices."

Woolworths said the middle and upper-middle income group was the “heartland of the Woolworths customer. We have accordingly adjusted our opening price-point offer and — given our continuing insistence on quality — our range is now extremely competitive.”

Woolworths said despite the tough trading period, growth in profits before tax and non-comparable items in the second half of the 53 weeks was expected to be positive.

Analysts have warned the retail sector faces an even tougher trading period in the remaining months of the year, with predictions that the traditionally buoyant Christmas period would be greatly subdued.

“Certainly, the outlook continues to sour," said Arthur Kamp, an economist at Sanlam Investment Management.

He said high inflation had eroded real personal disposable income growth and the outlook for private sector employment had also deteriorated.

“Against this backdrop, one must expect limited final consumption expenditure growth by households. The extent of the increase in oil prices in recent months has been an unexpected shock to consumers. Along with high food prices, the spike in electricity prices and the additional interest rate hikes we have seen, consumers could capitulate," he said.

Last week, auction house Alliance Group said up to 55,000 families, mostly middle income groups, would be struggling to keep up with bond payments by the end of the year and 8 000 could lose their homes unless they received help.

A spokesman for auction house Michael James said: “We are receiving an average of 10-15 repossessed vehicles per week. We are noticing similar trends with properties; people are actually putting properties to auction before a bank can repossess.”

Source: Business Day

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