Retail volumes continue to decline

Derek Engelbrecht retail and consumer products sector leader at Ernst & Young explains that the research showed that 44% of the retail respondents recorded lower sales than in Q2 2008 while 77% of respondents in the wholesale sector reported falling sales volumes.

“The higher level of confidence is unexpected given the shrinking sales volumes, relatively high inventory levels and the fact that retailers and wholesalers are being forced to cut back on employment. We could speculate that this is because although the data is negative it is being compared to the boom times of 2006 and 2007 and the actual sales levels haven't hit critical levels in this sector yet,” he comments.

Retailers in the durable goods sector continue to bear the brunt of the retail recession with 84% reporting a contraction in sales numbers, 4% higher than the previous quarter.

Consumers looking for value

“This indicates that the consumer is continuing to favour necessities and value-for-money goods at the expense of durable goods, choosing to postpone all but the most essential purchases of durable goods,” he says.

“At the same time continuing job losses are having a marked impact on the disposable income of South Africans and this has a knock on effect on the demand across all sectors,” says Engelbrecht. “The survey indicated that retrenchments in the corporate sector have intensified over the period of the survey with 26% of the respondents in the retail sector reporting lower employment numbers.”

Positive news for consumers is that price increases appear to be slowing in almost all sectors. Some sectors, such as retailers in durable goods and wholesalers in machinery and equipment, construction and building materials and clothing and footwear are already reporting price reductions, the food and beverage and tobacco market is still seeing price increases.

Passenger car sales still in freefall

Food inflation, which has been one of the drivers of overall inflation over the past couple off years remains at 13.6% according to Statistics South Africa. However, the research indicates that wholesalers and retailers in these markets expect price growth to slow dramatically during the Q3 2009.

At the same time the BER's index for the motor industry has dropped from -94 to -96, indicating that sales of new passenger cars are still in freefall. However, car dealers surveyed seemed to believe that the market was close to bottoming out and should see some improvement in the next quarter. This perception may account for the higher level of confidence in the new car sales market, with level moving up from five index points to 12 index points in the quarter.

“Although the core data from this quarter's survey is predominantly negative it appears that across the market companies are anticipating that a turnaround is near and that the SA market as a whole will return to its growth phase soon,” he concludes.

The Ernst & Young Festive Season Retail Trends Survey

The Bureau of Economic Research's business surveys are conducted quarterly. The BER's panel for the retail sector consists of 409 retailers and is broadly representative of the formal retail sector, taking into account the response rate and the results from a comparison between the composition of the survey panel and census and other official data.