South African retailers more optimistic than international counterparts

In the US, Sears Holdings announced it will close between 100 and 120 Sears and Kmart stores, and Macy's reported it would close nine stores including Bloomingdales at Mall of America, after disappointing holiday sales. Recent sales updates from big retailers such as Woolworths, Clicks, Truworths, Shoprite, Massmart, Mr Price and Foschini show buoyant consumer confidence in late 2011.

"Solid retail sales growth and consumer spending in 2011 helped to stave off higher numbers of liquidations and insolvencies," says SACSC manager Amanda Stops. SACSC is the official umbrella body of shopping centres in South Africa, which promotes the interests of retail property both in South Africa and internationally.

The formal retail in South Africa has been affected by harsh economic conditions. "A weak domestic economy and declining confidence among both consumers and businesses are impacting the number of liquidations and insolvencies."

Recent data from Stats SA revealed that liquidations in the retail sector for 2011 were down nearly 16% from 2010. This compares favourably to the total number of liquidations in 2011 in SA, which fell by some 11% year-on-year.

"The situation is not nearly as dire as in the UK and some other European countries," says Christo Luüs, economist at EcoQuant. "The number of liquidations in 2011 was down on that of 2010, but there appears to have been a rising trend since August last year." He notes that anecdotal evidence points to the catering and accommodation sector being hardest hit.

The good news, says the University of South Africa's Bureau of Market Research (BMR), is that retailers will be reasonably successful in upholding positive trading in 2012.

BMR's Forecast of Economic Indicators and Retail Sales 2012 points to an annual growth of 4.5% for formal retail sales this year, driven by positive GDP, and employment and labour compensation growth.

Supporting consumer spending, is rising household income and a stable interest rate environment. On the other hand, risks include consumer confidence, job market conditions and negative growth, especially in the Eurozone.

Rising operating costs are also placing South African retailers under pressure. IPD notes that increasing electricity tariffs in particular, are squeezing margins to the point they are disappearing for some retailers.

With most SA formal retail activity in shopping centres, Jess Cleland, head of research at IPD points out the issue of operating costs is relevant to mall owners and tenants alike. "Some shopping centres are now taking active steps to measure and manage electricity use to help reduce this significant cost, and lighten the load on retailers.

"There is also increasing pressure from retailers for shopping centres to entice shoppers through their doors. Falling visitor numbers, particularly in the face of a predicted slowdown in discretionary spending, is always a concern," adds Cleland.

Under these conditions, retail centres do not want retailers to fail in their malls. Stops advises that if a retailer is worried about the future of their business, they shouldn't take a wait-and-see attitude. Importantly, they should take action. "Talk to your bank, talk to your shopping centre manager, get advice from a specialist consultant. Take action early."