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ECONOMIC BAROMETER

Retail trade sales and other data point to continued strain on consumers

Retail trade sales and other data point to continued strain on consumers

Households are spending more on clothing and footwear, while steep food inflation and tight budgets have resulted in lower grocery spending and a postponement of home maintenance.

Retail sales trade data released by Stats SA on Wednesday show that the real (inflation-adjusted) retail sales growth for June declined by 2.5% year on year, weaker than the previous month’s slightly positive increase of 0.1%.  

The slow growth in real retail sales reflects a recent acceleration in retail price inflation, most notably in the “specialised food, beverage and tobacco” category (7.6%) of retailers, as well as in the “general dealers” category (7%) where much of the general food and grocery retail is found. A global and domestic food price inflation surge has been a key driver.

However, food price inflation is expected to ease following a “de facto ceasefire” agreement where Russia and Ukraine agreed to stop attacks on port facilities and merchant and civilian vessels. This will in effect release millions of tons of Ukrainian grain, which should help to stabilise global food prices.

Economist Lara Hodes of Investec points out that retailers have been plagued by longer delivery lead times as a result of supply-side challenges and electricity disruptions.

“Overall, declining real disposable incomes on high inflation and rising interest rates have negatively affected consumer expenditure,” she says. South Africa’s inflation rate reached a 13-year high of 7.4% in June. 

According to BankservAfrica’s Take Home Pay index, real salaries dropped by 7.8% in June, compared with the same period last year. 

Strain for retail tenants

John Loos, Property Sector Strategist at FNB Commercial Property Finance, says there are key implications for shopping centres.

“The rental payment performance of retail tenants is expected to remain the poorest of the three major commercial property categories through 2022. 

“TPN data in the first quarter of this year still put retail tenants in good standing, with rental payments at a lowly 62% and having weakened on the prior quarter, slightly below the office percentage of 63% and the industrial property percentage of 68%,” he says, adding that retail tenants face the challenge of weak real retail sales growth in the face of higher price inflation. They also have to deal with rising interest rates on debt, the SA Reserve Bank already having hiked interest rates by 200 basis points since late 2021, and expected by FNB to hike by a further 125 basis points this year. 

The FNB Property Broker survey reported that most brokers saw retail property vacancy rates declining in the first half of the year, as new business start up and expansion accelerates following the lockdowns of previous years. 

However, the recent renewed financial pressures on consumers, reflected in weak retail sales growth, are likely to slow demand for additional retail space for new businesses and existing business expansions for the time being. The recent declining vacancy trend may therefore likely be stalled for the time being.

Loos says shopping centres that focus more on basic necessities such as food and groceries still face pressure, with Stats SA retail data reflecting sales pressure in the “general dealer” category, along with healthcare and pharmaceuticals retail, while the “real general dealer retail” category dropped 5.7%, and sales in the healthcare and pharmaceuticals retail category fell 4.3%.

“However, we still expect these categories of retail to prove to be more ‘insulated’ against the recent increased consumer financial pressures, possibly remaining more stable than those centres more focused on non-essential purchases such as entertainment and eating out, luxury goods and ‘postpone-able’ expenditure items that are often found in areas such as clothing and footwear, furniture and household appliances, or hardware, paint and glass products for home maintenance,” Loos says.


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Clothing and footwear

Households playing catch-up on clothing and footwear spend contributed to a recovery in the major clothing, textiles and footwear retail category, which, as at June 2022, was still 6.8% above the pre-lockdown level of June 2019. However, home maintenance seems to have taken a back seat with the hardware, paint and glass retail category registering a decline of 8.6% in June.  

The BankservAfrica Economic Transactions Index also shows signs of consumers taking strain, with a decline for the second consecutive month. On a monthly basis, the BETI declined by 1.3% in July compared to a drop of 4.7% in June,” says Shergeran Naidoo, BankservAfrica’s head of stakeholder engagements. 

On an annual basis, the BETI increased 5.6% in July 2022 compared to 5% in June. However, this annual comparison is off the low base created by the riots in KwaZulu-Natal and Gauteng in July 2021, and under the Covid restrictions. These contributed to lowering the BETI, which recovered again in August 2021.

“This moderation in the BETI is not unexpected in light of the many headwinds that have surfaced in the local economy over the past few months — from the recurring load shedding, which was intense in July, to the significant rise in fuel, food and general inflation increases,” says independent economist Elize Kruger.

“Although the index still suggests that the underlying momentum in the economy might have been stronger than generally perceived in Q2 2022, the moderation in July signals a weak start to the third quarter.”

Mixed picture

Other nowcasting indicators continue to present a mixed picture of the economy. 

The Absa Purchasing Managers’ Index (PMI) plummeted to 47.6 in July, the lowest since July 2021, and notably lower than June’s 52.2. This dramatic decline suggests the manufacturing sector has been proportionately harder hit by the headwinds compared to the broader economy. 

The S&P Global South Africa PMI, which reflects activity in the private sector, picked up for a third successive month in July, helped by improving new orders, output and employment numbers. All three metrics signalled the quickest rates of growth since mid-2021, amid reports of improving market demand despite rapid inflationary pressures.

Total new vehicle sales rose by a significant 31.8% year on year in July 2022, partly influenced by a low base, but also reflecting ongoing pent-up post-Covid demand. With the strong July outcome, year-to-date new vehicle sales are 13.9% higher than a year ago.

On the confidence side, the SA Chamber of Commerce and Industry’s Business Confidence Index stood at 110.3 in July, 1.8 index points higher than in June and 6.1 points higher than in May.

The improved sentiment is reportedly a result of increased merchandise export and import volumes and more new vehicles sold. The business confidence index for June and July 2022 indicates that the negative medium-term (year-on-year) business sentiment of May 2022 was replaced by positive developments compared with the same period last year.

“Many different and often conflicting signals from high frequency indicators are typical of an economy in a ‘stop-start mode’, unable to gain synchronised momentum across sectors, as the next round of load shedding or some or other headwind, is probably waiting around the next corner,” explains Kruger. BM/DM

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