Retailers’ confidence dipped despite higher sales volumes

Retailers’ confidence dipped in the first quarter of the year despite higher sales volumes as consumers keep turning away from buying big-ticket items. It is also possible that consumers are careful as they first want to see what happens around the election on 29 May.

The results from latest retail survey conducted by the Bureau for Economic Research (BER) show that retailers’ business confidence levels dipped during the first quarter of 2024, despite an improvement in sales volumes. Retailers of non-durable and semi-durable goods registered the largest upticks in volume growth, although profitability remained low.

After jumping from 32 index points to 47 during the 2023 festive season, the retailer confidence index slumped back to 34 index points in the first quarter. Lisette Ijssel de Schepper, chief economist at the BER, says this implies that only a third of the retailers surveyed are satisfied with prevailing business conditions, similar to the business confidence reading at the start of 2023.

“The dip in confidence comes despite a slight improvement in seasonally adjusted retail sales volumes compared to the previous quarter, with the BER’s survey results pointing to low positive year-on-year growth in retail sales in the first quarter.”

She says the decline in retailer confidence can probably be ascribed to the fact that profitability remained poor in the sector, but the perceived risks around the upcoming national election may also be weighing on sentiment.

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Other retail categories slightly better

Apart from hardware retailers, all other retail categories the BER surveyed reported somewhat better sales volumes during the first quarter. Non-durable goods retailers registered the largest uptick in volume growth, no doubt supported by a further deceleration in food inflation and slower growth in restaurant and take-away spending, De Schepper says.

According to Statistics South Africa, food inflation decelerated to 7.2% in January, down from a peak of 14% in March 2023 and 8.7% in the fourth quarter of 2023. The growth in restaurant and takeaways sales volumes in turn slowed from 7.9% in the first quarter of 2023 to 1.5% by the fourth quarter, easing some of the downward pressure on food sales at the retail level.

Textiles, clothing and footwear retailers reported that their sales volumes re-accelerated during the first quarter, after suffering from some post-Rugby World Cup blues and underwhelming Black Friday sales in the fourth quarter.

De Schepper says the fact that semi-durable goods retailers are still reporting robust volume growth in the face of challenging economic conditions and on top of two years of impressive growth, is a positive surprise.

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Durable goods: furniture and appliances slightly up

When it comes to durable goods, furniture and household appliances sales edged up slightly, although this sector remains under pressure from anaemic real disposable income and credit growth.

“Alarmingly, after a dismal festive season, the BER’s survey results suggest that hardware sales volumes plunged even further during the first quarter of 2024. Weak hardware sales correspond with the deterioration in residential construction activity in the building sector in recent months and ties back to high interest rates, cost-of-living pressures and low consumer confidence levels.”

In all, De Schepper says, consumers are clearly still shying away from big-ticket purchases, but retail sales of non-durables appear to have turned the corner, while clothing and footwear volume growth remains surprisingly resilient.

“Looking ahead, lower levels of load shedding, moderating food inflation and interest rate cuts (expected to commence in July) should spark a more noticeable recovery in retail trade from the third quarter of 2024 onwards. But first, the political and economic risks around the 29 May national election loom large.”