Truworths faces rising consumer debt

Truworths' results are likely to show the deteriorating levels of spending among consumers. Image: Sandton City

Although the company has been conservative in applying stricter credit-granting policies, like rival Foschini Group, it has felt the pressure as the cost of living, slower wage growth and poor job prospects which have hampered consumer spending and caused a rise in delinquency levels.

In a business update last month, Truworths' said its sales rose just 7.1% to R5.9bn in the half-year to December, compared with 14.8% a year earlier. The fashion group increased trading space a 10.7%, indicating that sales were flat. Credit sales accounted for about 71% of retail sales, slightly down from 72% previously.

Since last year, the company has curtailed its credit growth, putting in more risk control, which affects the acceptance rate of new accounts.

Curbing unsecured lending, which gave retail sales a fillip prior to 2013, has been one of the major contributors to the downtrend in spending as shoppers battle to pay loans and settle accounts.

Credit controls

"The group has extensive experience in managing credit risk in tough market conditions and will continue to apply strategies to ensure the continued health of the debtors' book and profitability of the business," Truworths said.

For the half-year, Truworths saw credit sales growth of 6% and cash sales growth of 11%.

With about 65% of merchandise imported and US dollar denominated, Truworths, whose other brands include Identity, Daniel Hechter, Elements, Inwear and LTD, has also had to manage exchange rate volatility.

Although Foschini Group's update was more upbeat, analysts said that was possibly because Foschini had pushed credit harder than Truworths, accounting for some of the difference.

Also, Foschini said sales between 29 December and 13 January rose 17.6%, with 11.4% same-store growth, indicating aggressive markdowns.

According to Investec group economist Annabel Bishop, 61.8% or about 12.5m of credit-active consumers are struggling to service their debt.

"Growth in consumer spending has been weakening since 2011, because of a tightening in lending criteria and deteriorating confidence about the future as employment conditions in the private sector remained weak," she said. "Consumers are showing self-limiting behaviour in their demand for goods and services," she added.

This is reflected in lower volume growth among retailers.

Source: Business Day via I-net Bridge