Retailers going backwards as SA consumers buckle

The extent to which high interest rates, load shedding and a stagnant economy have hammered consumers is being laid bare in various sales updates from the country’s major retailers.

While all, with the exception of Cashbuild, have reported some growth at the top line, the reality is a little more nuanced.

Stubbornly high inflation means that for grocery retailers, growth of at least 10% ought to be ‘baked in’. After all, prices are up by somewhere between 9% and 10%. For clothing retailers, selling price inflation (of imported goods, especially) is even higher – at 12% or 13%.

Suddenly, reported sales growth of 9% doesn’t look that strong!

ALSO READ: Most South African consumers unhappy with brands – report

Pick n Pay’s profit warning last week painted a particularly dire picture – sales in its core Pick n Pay business at home declined by 0.3% when comparing the March to mid-July period to last year. Factor in inflation of 9.5% (running significantly lower than Stats SA’s food inflation figure of 13.2%), and volumes are down by 9.8% – practically 10%.

Put another way, it is selling fewer items than it did last year.

It appears that elevated levels of load shedding in April and May – where a peak of Stage 5 or Stage 6 was in place for nearly two full months – contributed to subdued consumer demand. Last year, there was very moderate load shedding during the comparable period, meaning a higher base with stronger consumer demand.

Pick n Pay says that on the back of more promotional activity, sales growth from the end of June was 2.4%.

ALSO READ: SA consumers surviving on credit in cost-of-living crisis

The problems in April have previously been telegraphed by other retailers.

At the end of May, Pepkor said that “trading in April was weak”. Although it says this had improved in May – it would be tough not to – “it is not expected that the operating and consumer environment will improve any time soon”.

Mr Price Group cautioned last week that nominal (3.8%) and real (-3.3%) wage growth has fallen to its “lowest level (outside of recessions) since 1994″.

“These conditions are not favourable for discretionary retail, placing considerable pressure on household disposable income and indebtedness.”

Its headline sales growth in SA – 20.9% in its first quarter – is practically all down to the acquisition of Studio 88 in October. Strip that out and you get 0.6%. It didn’t include like-for-like numbers (excluding any new outlets) but it is almost certain this was lower.

Sales in its Home segment – this is almost pure discretionary spend – declined by 1.7% in the quarter.

This is not an economy in anything resembling good health.

ALSO READ: Consumers getting close to affordability tipping point

Shoprite and Boxer

The pictures at Boxer and at Shoprite Group seem to look better, with growth at the former of 15.4% for 20 weeks and at the latter’s RSA Supermarkets division up 17.8% for the 52 weeks to 2 July.

But the growth in Boxer is almost all from new stores. Exclude these and growth is a far more pedestrian 3%, and if inflation is factored in, volumes are down 6.5%. Given the skew towards bulk commodities in this business, inflation is likely a bit higher, meaning volumes are down by an even greater amount.

Shoprite’s numbers (+17.8%) appear fantastic, but these are heavily distorted by the acquisition of 90-odd stores from Massmart. On a like-for-like basis, sales are up 10.3% for the year. Exclude its reported sales inflation of 10.1%, and volumes barely moved (0.2%).

However, Shoprite’s results are for the full year (52 weeks). At the half-year stage, like-for-like sales were up 11.1%. This means that in the first six months of this year (H2), like-for-like sales growth was closer to 9.5% (to get to the full-year figure). After inflation, volumes went backwards this year. 

Not to mention liquor sales growth at both Pick n Pay and Shoprite, which is significantly ahead of their respective reported top-line numbers (and liquor sales are included in the ‘supermarkets’ businesses).

Selling groceries is hard. Clothing, less so.

But volumes at Mr Price Group (excluding Studio 88) and Truworths have declined.

Cashbuild, which is battling a home improvement and construction cycle that is at multi-year lows, perhaps has it worst of all, with sales down in nominal terms (-4%) for the year. In Q4, revenue declined by 2%, suggesting the decreases are moderating. Overall, inflation in this segment is more subdued (5.4%), meaning volumes in South Africa are down around 10%.

Listen to this podcast in which Jeremy Maggs and NielsenIQ’s Steve Randall discuss how consumer behaviour has changed over the past year (or read the transcript here):

You can also listen to this podcast on iono.fm here.

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here.