Retailers face circumspect shoppers targeting essentials
South Africans will be more pragmatic in their festive season spending as tough economic conditions continue to force people to cut back.
Retailers, particularly those targeting the lower-middle end, have borne the brunt of weak consumer demand this year amid rising living expenses, bargain hunting and a search for value. Consumers, especially those in the lower living standards measures, have also become accustomed to using short-term debt to offset the lack of cash.
Confidence among retailers remains depressed due to tough trading conditions, lower sales volumes and deteriorating profitability levels, the latest BER Retail Trade Confidence survey for the fourth quarter indicates.
Moreover, retailers do not envisage an improvement in trading conditions in the coming months.
People were "watching their rands very carefully", Pick n Pay CEO Richard Brasher said. "They do want to feel as if they have enjoyed their holidays and they have done right by their families. The less affluent still want to have a bit more of what they normally have — an extra something special on the day."
Credit extension has slowed since 2012, but those who have come to rely on unsecured credit have found other ways of accessing credit through short-term loans and informal lenders to finance consumption.
Kamilla Kaplan, an economist at Investec, said retail sales growth would retain a modest growth momentum during the festive season.
"Consumer confidence is depressed, personal income taxes have risen and further tax increases are a possibility in 2016," she said.
Famous Brands group CE Kevin Hedderwick said although the environment was tough, "people tend to spoil themselves and their families around Christmas time."
Deloitte’s year-end holiday survey this week said South African consumers were cutting back on non-essential items such as furniture, home décor, gym, clothing and footwear, while demanding lower prices and better service levels from retailers as lacklustre economic growth forces them to curb discretionary spending.
Deloitte Consulting associate director Johan Scholtz said the weakness in domestic economic growth had definitely eroded consumer confidence and forced people to cut back on discretionary expenditure on luxury or nonessential items. "Yet, even while times are tough, consumers aren’t prepared to reduce spending on essential items like education, healthcare or groceries. At the same time, they’re demanding more from their retailers in the form of lower prices, better service and responsible business practices," he said.
Foschini Group CEO Doug Murray said while initial signs from September were not disappointing, the group did not expect to shoot the lights out.
The fall in the rand and general global macroeconomic pressure were the primary forces affecting spending patterns, said Antoinette Coetzee, retail analyst for Redefine Properties.
"Disposable income is down, but even credit growth is deteriorating from previous periods. The combined effect is more circumspect spending … the festive trading period is likely to be a short one this year, characterised by shoppers opting for quality over quantity, and driven by promotions."