South African apparel, electronics and home improvement retailers are bracing for another tough year, but analysts believe consumer spending pressures should ease from the second half of the year as interest rates begin to fall.
Broad industry data shows lackluster sales in November, with some of the country's biggest retailers reporting slowing sales growth in the Christmas quarter over the past two weeks, leading to concerns about the 2023 Christmas season. There were growing concerns that demand would weaken in the coming months.
However, December sales growth accelerated for Woolworths, TFG and Mr Price, with the latter posting a 9.9% rise in the quarter ended December 30, compared with a 15.5% rise in group retail sales in the same month. reported.
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Luxury fashion retailer Woolworths said last month that households were spending less, particularly on clothing, furniture, electronics and appliances, as high interest rates and inflation reduced disposable income.
Having sold many clothing items at full price, retailers have been wary of offering less steep discounts and giving up excessive margins compared to 2022 to attract holiday shoppers. ing.
Alec Abraham, senior equity analyst at Safin Wealth, said this cautious approach by retailers is due to the fact that “the consumer market is so weak that even discounting products is unlikely to drive total revenue growth.” “We don't think there will be a sufficient increase,” he said.
“Instead, retailers sought to protect their margins against the coming ‘storm.’”
Paul Stiegers, senior equity research analyst at Nedbank, said that while the backdrop is not particularly bullish, lower interest rates, a slight decline in food inflation, and improved GDP growth have led to a positive outlook for retail growth this year. will increase,” he said.
“So perhaps in the second half of the year we will start to see a small uptick in the more durable sectors, big-ticket items. will still be delayed.”
The central bank paused its rate hike cycle in July for the first time since November 2021, but has not cut rates since the coronavirus outbreak. Economists at Nedbank expect interest rates to be cut from May.
Core inflation is also slowing.
Stefan Erasmus, investment analyst at Anchor Capital, said the most significant risk to retail growth at this stage is the continued disruption of local supply chains, which will impact retailers' delivery of goods in the quarter. He said that he is giving.
This could lead to higher costs and potential loss of sales for retailers, he said.
