Absa CIB is of the view that South Africans must brace themselves for less deals this Black Friday. Picture: iStock
Will the South African Reserve Bank’s (Sarb) repurchase agreement (Repo) rate cuts and the two-pot system withdrawals contribute to consumers’ spending this Black Friday?
The Sarb’s Monetary Policy Committee announced another repo rate cut by 25-basis-point in November, after they made another 25-basis-point cut in September.
However, statistics from Absa suggest that South African shoppers may want to limit their expectations when it comes to Black Friday, as the market data indicate a slowdown in consumer enthusiasm for the annual global shopping.
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Chriszelle Joseph, senior coverage banker for Consumer Goods and Services at Absa said previously the fourth quarter used to make a lot of money for the retail sector, which would show an uptick in consumer spending.
However, they are of the view that this might not happen this year, as consumers are still suffering and recovering from prolonged high interest rates, high inflation, unemployment, and low household income.
Using their data, she added that consumer spending and transaction volumes on Black Friday once experienced double-digit growth in 2021 and 2022.
However, the figures slowed down to just 4% in consumer spending and 8% in transaction volumes in 2023.
“Moreover, on-the-day spending for Black Friday last year declined: the rand value of transactions dropped by 4%, in comparison to 2022.
“Furthermore, foot traffic on Black Friday 2023 plummeted, with an 80% decrease in in-store visits year-on-year.”
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Joseph said the reasons for 2023’s Black Friday not performing to the best of its ability was attributed to the day falling before payday, however, their data suggests a broader change in consumer habits.
“Online shopping saw a 20% increase over the first 23 days of November 2023, while in-store spending rose by 8% for the same period, indicating that many shoppers are now seeking out deals throughout the month rather than waiting for a single day of discounts.”
Joseph said that the country’s economy has influenced how South Africans look at how they spend their money after essentials such as food, fuel, and electricity saw a sharp price increase.
She added that many South Africans choose to relocate their spending to cover rising costs of living rather than discretionary purchases.
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“South African retailers are also facing economic headwinds that complicate their ability to fully capitalise on Black Friday’s potential.”
Many businesses are competing with e-commerce giants, which have led retailers to adopt a strategy of continuous offers throughout the year, eroding Black Friday’s status as a one-day event.
“Online shopping and social media have also made consumers more price-savvy. They now expect competitive deals year-round, particularly with seasonal and post-holiday sales becoming more popular.”
Many South Africans are experiencing discount fatigue, this is the sense that if deals are available frequently, there’s less need to act immediately on Black Friday.
“To keep up, retailers have had to rethink their promotional strategy, offering regular price reductions to maintain consumer interest and avoid losing sales to their online counterparts who can afford to be perpetually competitive.”
She said they have noticed that retailers are shifting towards ‘Black November’, a month-long approach that extends promotions over the period, rather than a single day.
“For consumers, this shift means fewer of the dramatic, one-day-only discounts that once defined Black Friday. Instead, shoppers can expect more modest price cuts dispersed over the month, requiring a savvier, more patient approach to find the best deals.”
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Wim Murray, Portfolio Manager at Foord Asset Management is of the view that the repo rate cuts, together with the two-pot system withdrawals are the two factors which will support consumers’ spending when it comes to black Friday and festive spending as a whole.
Data from Capital Connect and the Bureau of Market Research suggest there could be strong black Friday sales on the cards this year, with consumer spending that could inject R88 billion into the economy.
“Property stocks, although secondary, are also poised to benefit from increased consumer spending and potential rate cuts.
“Higher foot traffic in malls will benefit landlords with turnover-based leases, while lower interest rates will reduce financing costs, boost distributable income, and improve valuations by lowering capitalisation rates.”
The easing of financial pressure on households and the potential boost from Black Friday sales offer some optimism for South Africa’s retail sector.
“However, caution is advised against relying too heavily on short-term tailwinds.”
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