Merry Christmas!

"Retail sales are expected to take off this Christmas buoyed by the recovering currency and a healthy economic outlook," says Jaco van der Walt, Partner in charge of Retail and Consumer Products at Ernst & Young.

"An improved labour market, lower rental costs, better than average sales and improved price margins have all contributed to the much improved profitability of the industry," said Van der Walt.

Forty percent net of retailers surveyed expect Christmas sales to be higher this year, in contrast to the 16% net that expected higher sales last year. This is according to George Kershoff, senior economist at the Bureau for Economic Research (BER) at Stellenbosch University who presented the survey results at an Ernst & Young panel discussion on Christmas retail trends today.

"The categories 'furniture and appliances' and 'clothing and footwear' are expected to do especially well," says Kershoff. "Sixty and 63% net of respondents respectively anticipate higher Christmas sales compared to last year," Kershoff adds.

The survey indicates that last year, only 13% net expected higher furniture and appliance sales and 43% net expected lower clothing and footwear sales. In contrast, retailers foresee a smaller increase in food and beverage sales this Christmas compared to last year.

Kershoff explains: "Many people use year-end bonuses to purchase expensive durable items, such as household furniture, appliances and electronic equipment. People also often buy these items to impress visiting relatives and friends over Christmas time."

The price increase of electronic equipment has generally been lower during 2002 than feared previously, given the depreciation of the Rand. "This lower price increase, along with new technologies, is likely to be one of the reasons for respondents' expectations of higher sales of furniture, appliances and electronic equipment, over the Christmas period," says Kershoff.

Market research conducted by the Unilever Institute for Strategic Marketing reveals that clothing and footwear are by far the most popular Christmas gifts for children amongst urban black South Africans. Children are clothed from head to toe in new outfits. For many, this is the only time off the year that they receive new clothing. There is intense competition amongst families to show of their new clothes. The relatively subdued price increase of clothing and footwear sales (the prices of some standard items even declined) during 2002 are likely to boost sales further in the run up to Christmas.

"Although Christmas is usually a time of over indulgence, the sharp increase in food prices during 2002 is probably the main reason why respondents expect sales of food to increase at a lower rate this Christmas compared to last year," says Kershoff.

In terms of looking towards the future, Van der Walt comments that although the JSE retail index is currently at its highest point this year, profits could turn flat in 2003. He says this is attributed to an increase in costs at the same or higher rate compared to 2002. "Additionally, we can expect sales revenues to increase at a significantly lower rate in 2003 due to lower price increases," concludes Van der Walt.

Like last year, the BER included a special question "Compared to last year, do you expect Christmas sales this year to be lower, the same, or higher?" in their November survey to establish the prospects for Christmas sales. The survey was conducted between 28 October and 18 November 2002 and covered about 465 retailers across the country.