Baby steps for SA's retail sector

Analysts from Credit Suisse Securities say in a report that retail sales in April were disappointing.

"On all measures - current prices, constant prices, seasonally adjusted and non-adjusted - sales declined month-on-month in April.

"Granted, sales in March recorded a strong increase so the pullback should not be a surprise but the sector still appears to lack momentum," the analysts said.

Clearly, the sector is still grappling with a challenging consumer environment.

Some growth

But another retail analyst spoken to says while there is pressure on disposable income and unemployment will remain high, there has been modest growth in the retail sector, though, it is difficult to picture the retail sector returning to 2007 levels.

"But the worst is over," he told I-Net Bridge.

He added that while the index has been flat since March, that doesn't mean consumers are not spending. His sense is they are just being cautious on what they buy.

Painting a healthier picture of consumer spending, retail sales increased to 3.2% year-on-year (y/y) in April from 2.7% y/y in March, indicating that the sector is on a slow upward growth trend.

With the recession behind us, and the economy recovering, it seems consumers are cautiously spending more money, allowing for retail sales to improve, albeit at a relatively sluggish rate.

"The retail environment remains particularly fragile and subject to the still-distressed household environment and only once households' financial positions make a significant recovery, will we see a full recovery in retail sales," says Standard Bank economist Shireen Darmalingam.

Confidence drops

Retailer confidence decreased by 13 index points to reach a level of 38, the Bureau for Economic Research's (BER) second quarter retail survey has showed, suggesting that the recovery in the sector will probably be more slower that initially anticipated.

In line with April's improved retail sales figures, respondents to the BER survey said they were optimistic about the third quarter of this year and expected sales volumes to grow substantially higher, but only a handful of the respondents expected growth in sales volumes to return to positive territory next quarter.

A low interest rate environment should help boost retail sales, but high unemployment exacerbated by job losses during the economic recession is likely to hold back any gains that would be made in the sector.