Little festive cheer for retailers

Retail sales fell sharply over the festive season, resulting in a drop in share prices last week.

Image: ImageryMajestic Free Digital Photos

As memories of the December holidays fade, the extent of pressure on consumers became starkly clear. On this evidence, retailers such as Massmart, Woolworths and Mr Price face another tough year after consumer spending fell to its lowest level in 20 years.

The Christmas sales figures seemed to jolt investors, sparking a wave of selling of retail stocks. The worst hit were Woolworths (down 8.8% this year), Shoprite (down 7.9%), Mr Price (down 7.1%), Spar (down 5.9%) and Pick n Pay (down 4.3%). The least affected have been Truworths, which slipped only 1.9%, and Massmart, which dropped only 2.1%.

The prospects look dismal - and some parts of the retail market are taking more strain than others, like homeware.

Figures from Statistics SA last week showed that household and furniture recorded its 10th successive month of negative growth.

Overall, retail growth was 4.2% in December, buoyed by textiles, clothing, footwear and leather goods. While higher than expected, analysts doubt this will continue.

People are buying fewer big-ticket items such as furniture and household appliances.

Pressure from various quarters

The pressure is coming from various quarter - a slowdown in real wage growth, curbing of credit lines and a general rise in the cost of living, which shows no sign of abating. The weakening rand will also push prices up.

Roger Tejwani, Noah Capital Markets' retail analyst, said it was going to be a tough year. "There is normally a lag effect in rand weakness, given buying cycles. Merchandise [bought overseas with a weaker rand] going into stores now may show higher inflation."

Tejwani said that while sales growth among retailers had not deteriorated significantly, Christmas sales appeared a bit slower than in the past.

This casts the Mandela funeral closures of Shoprite and Massmart in a new light. Shoprite's loss of R260m reduced turnover by 0.7% for the period, while Massmart's R200m loss caused turnover to take a 0.3% hit.

"Expectations for festive trading were especially important this time, given a backdrop of deteriorating consumer data," said Tejwani.

"Woolworths had given a strong trading update six weeks before Christmas and people expected that to continue over the festive period. It wasn't a poor performance but it disappointed a few people."

This seemed to be the theme. Last week, Mr Price's stock dropped 1.8% after it said sales for the three months to the end of December rose 14.8% - lower than expected, as its home division dragged down an otherwise solid performance. This was disappointing, especially considering that Mr Price opened 34 stores during those three months, bringing its total number of stores to 1,075.

Sales at rival Foshini climbed 11.4% over the Christmas trading period, but this cloaked the fact that if you exclude new stores its growth was only 5.3%, while its @home store had growth of only 4.5%.

Over at Truworths, it was the same story, as the company cut back on credit. Truworths' trading update showed that retail sales grew 7.1% to R5.9bn for the six months to December - less than half the growth of the year before. Credit sales grew 6% and cash sales 11%.

While Woolworths' food division grew by an impressive 15.3%, its clothing arm was less impressive, growing by only 10.7% in the 26 weeks to the end of December. Woolworths had been one of the few retailers to end the year up in terms of share performance. By contrast, Massmart had fallen 36% since its peak in May.

Massmart's sales for the 53 weeks to December were up 9.7% to R72.2bn, pretty much in line with expectations. It opened a few new stores though, so the growth in existing stores was a more muted 3.8%.

At Shoprite, growth slowed. Whereas in 2012, there was a 13.8% rise in growth for the six months to December, last year growth was just 9.6%, reaching R51bn.

Source: Business Times