Tale of two economies

Retail figures released by Stats SA last week painted a bleak picture of trading conditions. Sales fell 4% y/y in November — the seventh consecutive monthly decline. Yet trading updates from the SA's big retailers tell a story of a more robust sector. Among the winners are Shoprite, Mr Price, Massmart and New Clicks, which experienced real growth in the six months (Massmart and New Clicks three months) to December.

Lewis, on the other hand, is treading water, while Foschini and Woolworths both lost ground.

“The November data show an economy that is battling,” says Standard Bank senior economist Johan Botha “Yet the big companies have done well over the festive season.”

He does not believe the trading updates signal a change in shopping trends. “I think people like to spend over Christmas, and they may borrow to do that.”

BoE Private Clients retail analyst Jason Binneman agrees that there is a disconnect between the official Stats SA figures and what retailers are putting out. “It may be the effect of petrol price and interest rate decreases in December. Less drain on household cash flows may have pushed December numbers beyond expectations.”

One company that reported a notable uptick in December was furniture and electronic goods trader Lewis. Merchandise sales rose 5% and revenue 7% in December (as opposed to 2% and 5% for the quarter). Clicks also reported stronger festive trade as customers opted for its smaller gifting ranges.

Despite the good news projected by retailers, Botha believes the Stats SA numbers are important because they add to the picture of household consumption spending. “This component of the national accounts makes up more than 60% of GDP,” he says. “The performance of retail sales has not changed much in recent months. A protracted contraction in sales growth has been evident since March last year. Retail sales will remain under pressure until the underlying drivers — disposable income, inflation and interest rates — improve.”

Another reason for the discrepancy between the official data and the retailers' numbers is the fortunes of the small stores. “The Stats SA sample includes the speciality stores, the mom and pop stores and spazas,” says Binneman. “They are bearing the brunt as consumers move to discount stores in search of value. The bigger stores can manage their costs and prices better.”

It appears then that retailers need to hang on tight until at least the second quarter of 2009, when the slide in retail sales is expected to stabilise. For the moment, share prices suggest there are few bargains in the retail sector.

Source: Financial Mail

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