The sales reported by Woolworths, especially the food business, are a very useful indicator of where the market stands for high-income consumers. These households are more likely to shop for groceries at Woolies than elsewhere.
So trading looks “good” when the group announced same-store sales rose 7.2% in the six months to Christmas Eve. Sales volume is down about 2% year-on-year, except that sales price inflation was 9.1% over the six-month period.
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Read: Woolies online food sales soar by more than 40%
Next time you go to Wooley, take a look around. Basket size will be smaller. Those monthly shops are now half Carts loaded with groceries and other nice-to-haves are considered very carefully, if at all.
Some might say it's just poor merchandising, but the amount of unsold festive gifts (think fancy chocolates and biscuits) in grocery stores is significantly higher than in previous years. I was there.
It is not just the middle class that is feeling the pinch, one would think that South Africa's wealthier customers are also feeling the pinch.
(In fact, Woolworths' fashion, beauty and home division fared even worse over the past six months, with comparable sales up 1.5% and price change of 11.4%. On a volume basis, sales has decreased by nearly 10% since 2022!)
Woolworths Financial Services, a joint venture with Absa, has seen de facto store card impairment rates rise by 4%, 5.5% and 6.3% over the past three years.
Not just woolly
Last week's update on TFG Limited, Trueworth and Mr Price paints a similar picture, but detailed results in the next five months will provide a more precise data point.
From October to December, TFG Africa's homewares division, strengthened by the acquisition of the Tapestry brand in 2022, saw sales increase by just 0.9%. Tapestry has added Coricraft, Granny Goose, and Dial-a-Bed to its existing @home brands to target the upper-class market. Cosmetics sales rose 3.4% in the quarter, while sales in the jewelry category fell 2.6%. Accounting for inflation reduces the volume of transactions in these discretionary categories.
Mr. Price's sales in the household category also increased by 0.9%. (Yuppiechef is the exception that proves the rule with “double digit” growth.)
Trueworth, which probably has more contact with “middle class” customers than wealthy customers, saw underlying sales fall by 3.3% in November and December. The retail sales price inflation rate was 8.4%. This means that the volume has decreased by almost 12%.
read:
TFG sales growth slows in Christmas quarter
True Worth warns about half-year profit
Price hits 52-week high on third-quarter sales growth
These data points illustrate trading performance towards the end of last year, with particularly significant load reductions in the first half of September and the second half of November. Even last year's Black Friday had a damp atmosphere compared to previous Fridays (probably due to the Stage 6 power outage).
However, the wealth of “wealthy” households has not kept pace with inflation in recent years.
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anemic growth
President Cyril Ramaphosa memorably referred to his predecessor Jacob Zuma's term as a “lost decade”. The problem is that for the first few years (first half?) of Zuma's presidency, things were still going well. The corruption then set in and we can see the evidence every day: Eskom, Transnet and numerous other state-owned enterprises, bankrupt or collapsed municipalities… and the absence of anything to stimulate economic growth. All of this means anemic growth, which basically means the economy is stagnant.
The JSE All Shares returned 2.9% last year. The JSE Midcap Index, which is primarily a collection of 'SA Inc' stocks, surprisingly produced a 'better' return, which was only 4.31%. Everyone with means is draining much (most/all?) of their wealth.
read:
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This can be seen in the divergent performance of the FNB house price index. The average house price 'growth' for properties priced between R5.5 million and R7.5 million in the third quarter of last year was -14.7%. Generally, house prices above R2.5 million have seen double-digit declines in recent quarters.
Perhaps the most frightening statistic that perfectly illustrates the shrinking of South Africa's 'wealthy class' is that the BMW Group* (BMW and Mini) sold half as many new cars in the country in 2023 as it did ten years ago. (13 679 vs. 27 671).
This decline was not strictly linear, with a 37% decline between 2013 and 2018. Over the past five years, sales have “only'' decreased by 21%.
Fewer than 350,000 new passenger cars were sold in this country last year. More than 100,000 more were sold in 2013.
That's surprising.
read:
Just over 500,000 vehicles will be sold in South Africa in 2023
New car discounts are popular as dealers try to increase sales.
Trading outlook weak as festive sales disappoint
*Mercedes-Benz resigned from the Automotive Business Council Naamsa in 2012, leaving the BMW Group as the only viable flagship for the wealthy (Audi's sales are included in the VW Group).