South Africa’s retail sector starts to struggle

After months of resilience, the realities of the tough trading environment have caught up with South Africa’s retail sector.

Elevated consumer price inflation and large interest rate hikes are limiting consumers’ disposable income.

With the services sector still recovering from the Covid-19 pandemic, consumers may also be directing a larger share of their spending away from retail towards restaurants, hotels and transport.

From the supply side, retailers must navigate intense load-shedding, high fuel costs, and input pricing pressures.

The Bureau for Economic Research’s (BER’s) latest retail trade survey shows that retail confidence has dropped from 51% in the third quarter to 42% in quarter four.

Retailers expect lower sales volumes this quarter compared to the same period last year.

It is true across all retail categories and reflects bleak expectations about fourth-quarter sales, despite the festive season and Black Friday.

The drop in sales of semidurable goods is particularly striking.

Compared to the strong growth in sales of clothing and footwear we have seen over the past year, the latest results suggest a slowing pace of recovery.

The drop in fourth-quarter retail confidence contradicts the FNB/BER Consumer Confidence Index, which showed improved consumer sentiment.

It hints at an increased willingness to spend among consumers.

If employment creation and moderately higher GDP growth carry through and strengthen consumers’ ability to spend, we may see retail confidence bounce back early next year.

Alternatively, consumers may continue to allocate a greater share of expenditure to services.

In the BER’s Motor Trade survey, confidence among vehicle traders remained stable.

It is supported by vehicle stocks recovering after the April floods in KwaZulu-Natal and the normalisation of global supply chains.

The increase in consumer sentiment – especially among medium- and high-income consumers – may also have contributed to confidence among motor traders.