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Retailers in South Africa are feeling increasingly confident, but economists are not expecting a festive time for retailers as 2023 comes to an end.
According to the latest BER Retail survey, after climbing from a three-year low of 20 in Q2 2023 to 32 in Q3, the number of retailers that were satisfied with the prevailing business conditions increased further to 47 in the fourth quarter – the highest reading since 2022Q3.
The BER said that the improvement in confidence appears to be driven by improvements in profitability and general business conditions – with load shedding improving at the time of the survey – instead of sales growth.
Respondents in the non-durable goods retail sector (e.g., food, beverages, groceries, cosmetics and pharmaceuticals) said that sales volumes were significantly lower compared to the 2022 holiday season.
Purchasing and selling price inflation remained high in the sector, even if it was slower compared to the first half of the year.
The avian flu outbreak also caused egg prices to surge, interrupting the downward trajectory of food inflation during Q2 and Q3.
“Lower levels of load-shedding, combined with the increased utilisation of solar power would have reduced the need to run expensive diesel generators and likely boosted profitability. This, in all likelihood, bolstered non-durable goods retailer confidence”, noted Craig Lemboe, deputy director at the BER.
Durable goods (e.g., furniture and hardware) retailers also saw lower sales volumes compared to last year, even if hardware sales improved relative to a very weak Q3 2023.
The hardware sales growth was likely due to recovery in the building industry as well as repairs done by homeowners in the Western Cape following the damage caused by the September floods.
Although there was sustained high durable goods purchasing price inflation due to the rand’s weakness, durable goods retailer selling price inflation eased.
“Black Friday sales were no doubt used to entice customers in a sector that is currently strained by high interest rates and cost-of-living pressures,” said Lemboe.
Semi-durable goods (e.g., textiles, clothing, footwear, sporting equipment and toys) retailers continued to see positive volume growth over the Christmas period and were the only sector to see higher sales volumes compared to a year ago.
Christmas will break your heart
That said, there was a drop relative to Q3 when the sale of Springbok-related merchandise boosted sales volumes.
Clothing and footwear retailers said that congestion at the South African ports led to the late arrival of their summer ranges, affecting sales in the summer holidays.
“In all, the BER’s survey results suggest that retail tills will not jingle so merrily this festive
season, even though lower levels of load-shedding and improved profitability have bolstered
retailer confidence,” the BER said.
“High inflation and interest rates have reduced the purchasing power of consumers, and retail sales volumes will likely disappoint compared to the same quarter of last year,” Lemboe added.
“With cost-of-living pressures projected to remain high in the near term, business conditions will remain challenging in the trade sector during the first half of 2024”.
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