Credit sales at the Lewis Group rose by only 2% in Q4 2020, which is practically no growth at all. The bulk of the growth was in good old-fashioned cash. (Photo: Gallo Images / Charles Gallo) The Lewis Group, whose retail brands include the Beares chain and which has a mostly working-class clientele, saw a surge in cash sales in the three months to December 2020, and almost no growth in credit sales. This suggests lower interest rates are not trickling down the income ladder.
The Lewis Group outlined the figures in a SENS trading statement on Wednesday 27 January.
“Despite the ongoing pressure on consumer spending arising from the Covid-19 pandemic and lockdown restrictions, the group delivered strong sales growth of 16.6% for the third quarter to December 2020, supported by another buoyant Black Friday performance. Cash sales for the quarter grew by 35.9% while credit sales increased by 2%,” it said.
That points to pent-up demand after the company’s stores were shut from late March to June during last year’s initial hard lockdown. In 2020, when it reported on its December quarter for 2019, the group reported sales growth of 6.9% while pointedly not giving a breakdown between cash and credit transactions.
So, what explains this divergence? Interest rates last year were slashed by 300 basis points in the face of the lockdown damage inflicted on the economy, making South African credit cheaper than it had been in decades. But credit sales at the Lewis Group rose by only 2% in the quarter, which is practically no growth at all. The bulk of the growth was in good old-fashioned cash.
“People from lower-income households don’t want to take on more debt because they are worried about the prospect of losing their job,” Bright Khumalo of asset manager Vestact told Business Maverick. The collapsing economy has triggered a jobs bloodbath and the unemployment rate is effectively north of 40%.
“Your average person does not look at rates, they look at potential future income,” Khumalo said.
Among other things, this suggests that lower interest rates are not lifting the fortunes of lower-income households. Relatively cheap credit is a great thing perhaps, but you need a steady income to really access it. Deprived of that, cash becomes king. Hopefully, this does not mean that poorer households are running down their limited savings. BM