Deterioration in retail sales growth in Q2

The percentage of retailers reporting that they were satisfied with prevailing business conditions fell from 61 during the first quarter of 2012 to 39 in the second quarter of 2012 - the lowest level in two years.

Meanwhile‚ official retail sales data released by Statistics South Africa showed that the growth in retail sales volumes already slowed from 7.8% year on year (y/y) in the fourth quarter of 2011 to 5.9% y/y in the first quarter of this year and slumped to only 1.0% y/y in April.

While the further deceleration in retail sales growth in April as reported by Statistics South Africa correlates with the findings from the survey‚ it should be noted that the particularly low year-on-year growth rate for April 2012 (1.0%) can partly be ascribed to the relatively high base created in April 2011 when retail sales volumes were boosted by the concentration of public holidays in late April and early May and additional school holidays after the Easter weekend.

According to Derek Engelbrecht‚ retail and consumer products sector leader at Ernst & Young‚ the results from the survey‚ which was conducted in May‚ suggested that volume growth remained subdued and retailers had started to trim order volumes that they placeed with wholesalers and manufacturers.

The slowdown in domestic retail sales growth‚ coupled with a substantial escalation in the eurozone debt crisis and concomitant deterioration in the outlook for global economic growth‚ lead to a marked decline in the confidence levels of retailers during the second quarter of 2012‚ he noted.

The survey results also suggested that non-durable goods and durable goods recorded slower volume growth during the second quarter compared to semi-durable goods.

Interestingly‚ the majority of respondents in the survey - particularly in the non-durable goods sector reported that both input costs and retail selling prices continued to increase rapidly.

In contrast‚ semi-durable goods retailers reported that input cost increases eased somewhat during the second quarter of 2012‚ after higher cotton prices‚ rapidly rising Chinese wages and a depreciation in the rand exchange rate pushed clothing and footwear prices significantly higher over the last year.

Looking ahead‚ the growth in retail sales volumes is likely to moderate further during the second half of 2012‚ as real income growth is expected to slow.

"Solid job creation during the second half of 2011‚ significant tax relief and strong growth in household income from property on the back of a 30% rise in dividends led to a 5.0% increase in the real disposable income of households during 2011‚" Engelbrecht said.

"Conversely‚ consumers were afforded very limited real tax relief this year‚ while the deterioration in business sentiment around the globe will likely weigh on both domestic employment growth and household income from property during 2012‚" he added.

Higher inflation has also started to eat into the affordability of consumer goods‚ while credit growth is not expected to accelerate meaningfully before global risks start to recede.

However‚ Engelbrecht pointed out that higher retail selling prices could counter some of the adverse impact of slower volume growth on retail turnovers.