Retail confidence falls by 14%

Retail confidence fell by 14% from 34% in the first quarter of the year to 20% in the second quarter, primarily due to a noticeable decline in profit thanks to load shedding, high food prices and rising interest rates.

According to the Bureau for Economic Research (BER), 56% of the participants in its quarterly retail trade survey indicated that they expect trade business conditions to worsen in the near term when they were asked if they expect business conditions to be better, the same or poorer in the third quarter. 

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The BER says the substantial decline in retailer confidence can be ascribed to a marked deterioration in profitability on the back of soaring load shedding-related costs, persistently high food inflation and the fact that the repo rate keeps increasing and is now at a 14-year high.

“Load shedding remains the main driver of the loss in confidence and the survey shows that profitability is suffering as a result. During the second quarter, the BER’s retailer confidence and profitability indices both slumped to their lowest levels since the second quarter of 2020 when hard Covid-19 lockdowns were implemented.”

Load shedding hammers confidence

According to the BER, load shedding increases operational costs for retailers who must invest in backup power or buy diesel for generators.

“It also affects consumer confidence and directs spending away from retail, such as consumers opting for takeaway and restaurant meals during load shedding. A surge in consumer spending on solar panels, inverters and batteries also reduces available household income.”

However, there is some difference between how different retail subcategories are trending. Retailers of non-durable goods, that include general dealers, retailers in specialised food and beverages and tobacco and retailers in pharmaceutical and medical goods, cosmetics and toiletries, seem to be particularly taking strain. 

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Semi-durable goods retailers, that include retailers in textiles, clothing, footwear and leather goods on the other hand, continued their post-Covid recovery. The BER says one driver might be a difference in inflation trends.

“In April, clothing and footwear prices had grown by 3% year-on-year, while the prices of food and non-alcoholic beverages were experiencing the ninth month of double-digit inflation (13.9% in April 2023). Another factor might be that more people are returning to the office, travelling and resuming recreational activities such as concerts, parties and sporting events after the pandemic.”

The BER says the Social Relief of Distress grant introduced in 2020 may specifically have boosted sales of low-priced clothing.

Irony of load shedding’s impact

“Ironically, for durable goods that include household furniture, appliances and equipment and retailers in hardware, paint and glass, load shedding helps to maintain sales of electrical appliances when these break down due to power surges.”

The BER’s Retail Trade survey also reveals a discouraging inflation trajectory for non-durable goods, with the selling price index climbing to 90 points in the second quarter, up from 79 in the previous quarter.

“The cost of investing in backup power and the depreciation in the rand exchange rate during May likely played a big role in retailers’ purchase and selling price expectations.”