SA consumers cut back on non-essentials, but demand more from retailers, survey finds

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The report shows that 84% of South African consumers are prepared to cut back on furniture, DIY projects and decorations, followed by 82% also willing to spend less on entertainment or leisure activities like eating out, gym and going to movies; 76% of respondents are prepared to cut back on clothing and footwear followed by 74% who'd spend less on holidays. The most resilient items were health care and essentials like groceries, education fees or energy bills with 72%, 73% and 65% of consumers, respectively, not prepared to cut back on these.

"The weakness in domestic economic growth has definitely eroded consumer confidence and forced them to cut back on discretionary expenditure on luxury or non-essential items," said Johan Scholtz, associate director of Deloitte Consulting. "Yet, even while times are tough, consumers aren't prepared to reduce spending on essential items like education, health care or groceries. At the same time they're demanding more from their retailers in the form of lower prices, better service and responsible business practices."

Confidence index slumps

South Africa's FNB/BER Consumer Confidence Index slumped to a fourteen-and-a-half year low in the second quarter of 2015 as weak domestic growth and persistent uncertainty about the prospects for recovery reduced the willingness to spend or use credit facilities. Finance Minister Nhlanhla Nene also lowered his economic growth forecast for the year to 1.5% in October, down from an earlier estimate of 2%.

Local consumers' propensity to cut back on spending differs substantially according to age and gender, according to Deloitte's report. Younger consumers aged 18 to 24 are less likely to cut back on spending compared to those older than 25, particularly spending on non-essential items like digital or clothing and footwear.

Although South African consumers are more conservative with respect to holiday spending, most consumers (55%) spend more during the festive season as they want to enjoy the holidays instead of focusing on the poor economic situation. This view is prominent amongst male consumers (62% compared to 49% of female consumers); consumers between 18 and 24 years of age (68% compared to an average of 55% across all age groups); and consumers of below average income (66% compared to 55% average across all income groups).

In line with the trend over the past four years, cash remains a popular gifting option in 2015 with 41% of adult consumers (18 to 34) naming it as their most anticipated gift followed by chocolate, vouchers and clothes. Ironically, when respondents were asked what gifts they were likely to give to friends and family, cash did not make the top-10 list of items. Instead, chocolate topped the list with 44% of respondents naming it as the gift they would most likely give to friends and family followed by books (40%), gift vouchers (39%) and CDs (32%).

Poor sentiments

"Our survey revealed that consumer sentiments about the economy are generally poor," said Francis McDonald, senior manager: consumer business of Deloitte. "The emergence of cash as the top desired Christmas gift reveals the extent to which they're under pressure from the rising cost of living."

The top-four gifts for teenagers are video games, CDs, cash and clothing items. Video games are the gift most likely to be given to teenagers both locally and in Europe. CDs are at number two in South Africa whereas in Europe, CDs are sixth on the list of gifts most likely to be given to teens. Children under 12 years of age are most likely to receive educational toys for Christmas with 55% of respondents naming such items as their most likely purchase for their children followed by games (42%), dolls (41%) and clothes (40%).

South African consumers also revealed a strong discretionary bias in their purchasing behaviour with 72% indicating they wouldn't buy products involving child labour and 68% saying that product information on packaging influenced their spending. This indicates that manufacturing companies need to be bear in mind that ethical and responsible practices have a major impact on the perception of their products in the market as well as consumers' purchasing decisions.

Sixty percent of South African consumers also revealed that they were likely to consult social media and websites to seek out information or advice on products, including checking prices, research gift ideas and find information on discounts, coupons or sales. "Information needs to be easily and - increasingly so - instantly available," said McDonald. "Online platforms play a key role in achieving that for consumers, and in influencing their purchasing decisions and behaviours." Interestingly, over 80% of consumers still prefer to make their purchases in physical stores, particularly for products such as toys, fashion items, food and drinks, health and beauty and sports goods.

Early shopping

For the 2015 festive season, most South Africans surveyed said that they prefer to purchase the majority of their gifts before December (40%) compared to 29% between 1 and 15 December and 31% after 15 December. In this regard, South African shopping patterns are similar to the UK and France where most consumers prefer to buy their gifts before the frantic December period.

Retailers will need to assess their in-store shopping experience levels. No less than 79% of South African consumers expect store assistants to be knowledgeable about products while 46% of those surveyed expect to be greeted promptly with a welcoming attitude upon entering the store.

"Not only do retailers face increasing competition from their rivals but they're also grappling with the challenge of meeting increasingly high standards from the consumer," said Scholtz. "Consumers want the best of all possible worlds - low prices, high quality and superlative service. The retailers that are able to best cater to these varied and rapidly changing demands are the ones that will be most successful."