Retailers' hopes for pickup sour

Retailers saw sales volumes fall in the second quarter even as they cut prices to maintain turnover, according to the Bureau of Economic Research's latest index of retailer confidence.

The overall index - part of the wider business confidence index - sank 13 points to 38 in the June quarter, its lowest for three quarters. The index is calculated by balancing the percentage of positive and negative responses.

Retail sales volumes contracted for a seventh successive quarter, with the sub-index for that measure reading -7, with the percentage of respondents saying volumes were lower than a year earlier outnumbering those reporting higher volumes by seven percentage points. Three months earlier the figure was -5. Wholesalers suffered a worse quarter, with a sales volume index for the quarter of -18.

Worse than expected

The figures suggest a worse performance than expected in retail and wholesale sales, which with catering and accommodation account for just over 13% of the economy.

"In the first quarter there was a general conviction around the global economic recovery and that it was nicely filtering through to SA.

"The second quarter was when we started getting bad news from abroad again. Europe was one example. Maybe people startle losing confidence around the sustainability of the global recovery," said Elna Moolman, group economist at brokerage Barnard Jacobs Mellet.

"It was not so much that they were becoming pessimistic, but losing conviction and becoming a little bit more cautious."

Realistic expectations

Expectations of an improvement remain. The sub-index of retailers' sales volume expectations for the third quarter stands at 11 - a net balance of 11 percentage points - while for wholesalers it is four.

Still, a failure by the local economy to create jobs in any meaningful number remains the biggest check on growth in retail sales. Until that happens - and it is not expected before the end of the year - retailers will have to keep working hard to move goods.

A majority said they cut prices in the second quarter compared with a year earlier - the index reading was -13. In contrast, the index at the end of the first quarter showed that the majority kept prices unchanged from a year earlier.

Confidence dropped sharply among vehicle traders. The index of respondents saying current trading conditions were satisfactory remained positive, but fell back from the previous quarter's 60 to 49. This reversed part of the surge in the first quarter that saw the sub-index leap from 29 to 60.

"The lower level of business confidence could merely be a correction to more reasonable levels. Expectations that the soaring growth will not continue during the third quarter may also have played a role," said Craig Lemboe, an economist with the Stellenbosch-based bureau.

Source: Business Day