Tide turns for furniture retailers

The South African Reserve Bank (SARB) cut the repo rate by 50 basis points to 5.5% in November, taking interest rates to their lowest in almost 30 years, allowing consumers to spend more money and facilitate debt more easily.

According to Stats SA, retail sales figures surpassed growth expectations for September 2010 showing an increase of 6.1% year-on-year (y/y), with the highest annual real growth rate recorded for retailers in household furniture, appliances and equipment at 16.8%.

When asked by I-Net Bridge whether the worst was over for furniture retailers, chief executive of Lewis Group Johan Enslin said: "We can only speak for ourselves but with merchandise sales up 11.2% to R2.136 billion it's evident that consumers are spending more."

Steadily improving financial state drives sales growth

Lewis Group, which sells furniture to the lower and lower-middle income market, last month reported bottom-line profit up 14.5%, with bad debt costs stabilising for the six months ended September 2010.

The group said that sales growth was driven by the steadily improving financial state of consumers in the Lewis target market.

Enslin said that the group prided itself on keeping close relationships with its credit customers. Credit makes up 67% of the company's sales of furniture.

"This decentralised credit collection process has served us well and during tough times we worked out a number of payment plans with customers," Enslin said.

According to National Credit Regulator (NCR) figures released on Wednesday, as at the end of September credit bureaus had records for 18.35 million credit-active consumers.

Of this number, 9.86 million or 53.7% were classified as in good standing, an improvement from the previous quarter.

According to consumer economist at Liberty Life, Tendani Mantshimuli, several factors, including lower interest rates, have contributed to an improvement in the number of credit-active consumers classified as being in good standing in the third quarter.

"Three things contributed. Continued low inflation and interest rate cuts have started filtering through.

"Consumers with jobs have had high wage settlements and their disposable incomes have improved," Mantshimuli said.

Rival JD Group posted a nearly seven-fold increase in profit for the year ended August 2010.

Trading conditions pick up

The company, owner of Joshua Doore, Incredible Connection and Hi-Fi Corporation, said sales rose 3% to R9.5 billion, mainly from a better second half.

JD Group announced a total dividend of 150 cents, up 275% from last year's 40 cents.

A retail analyst said trading conditions in the sector had definitely picked up.

"There is a marked improvement in the furniture and appliance sector. People have more money to spend because interest rates are lower.

"They're feeling more confident to part with their cash, not just for smaller price tags but for bigger items too," he said.

The analyst added that furniture retailers were coming off a very low base after the economic downturn, but because this was a cyclical business they would perform well as the economy picked up.

As 2010 hurtles to a close furniture retailers are optimistic about the Christmas trading period.

Future looking bright

Lewis Group said the outlook for its consumers continues to improve steadily.

"Higher real wage increases granted across most sectors of the economy are positive while retrenchments and job losses in our customer base appear to have stabilised," said Enslin.

He added that the festive season trading period would again be supported by merchandise and promotional activity.

"40% of our merchandise is imported. We source from South America, China, Vietnam and independent local suppliers.

"Our Christmas selection has been sourced carefully and we're quite optimistic, we've got a good range of value stock for our customers," he told said.

Last year Lewis Group fared better than JD Group during the Christmas trading period, reporting that revenue for the quarter ended December 2009 increased by 7.9%, while revenue growth for the nine months ended December 2009 was also 7.9%.

JD Group however, said sales declined 8% year on year during the festive season of 2009.

This year, however, JD Group says that its performance over the past six months gives reason for an optimistic outlook for the group.

"All divisions are well positioned to maximise this festive season's trading," it said.

Stronger rand brings some benefits

A report from retail software company UltiSales Retail Software released on Wednesday said the country seems poised for a much improved retail Christmas period as consumers have more disposable income due to factors such as rate cuts.

Similarly, results from the latest Bureau for Economic Research (BER)/Ernst & Young Festive Season Retail Trends survey reveal that after a two-year hiatus, consumer spending should be relatively strong over the period leading up to Christmas.

"With many retailers expecting to cut prices, consumers can look forward to reasonably priced goods over the festive season," Derek Engelbrecht, Retail and Consumer Products Sector leader at Ernst & Young said.

According to Engelbrecht, among the biggest price discounts expected are in the durable goods category for items like electronics, household appliances and furniture.

"Because many of these good are imported, the lack of retailer pricing power is partly a function of the sustained strength of the rand exchange rate against especially the US dollar," he added.

The torrid times of the recession will be a distant memory for furniture retailers if their Christmas wishes come true.