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08 Dec 2014RETAIL: Retailer Confidence Buoyed By Recovery in Turnover Growth During Festive Season
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According to Derek Engelbrecht, Retail and Consumer Products Sector leader at EY, “Volume growth remained modest in 2014Q4, but retail prices have been increasing at a much faster pace during 2014 compared to the 2013 festive season. This points to a significant improvement in the turnover growth of retailers compared to the weak growth rate of only 5.9% year-on-year recorded in 2013Q4."
Official retail sales data released by Statistics South Africa shows that the growth in retail sales volumes slowed from 2.3% year-on-year (y-o-y) in 2013Q4 to a mere 1.4% y-o-y in 2014Q2, but recovered to 2.2% y-o-y in 2014Q3. "Boosted by a recovery in strike-affected incomes and a substantial drop in the petrol price, the growth in retail sales volumes should improve further, albeit modestly, during the 2014 festive season," said Engelbrecht.
According to Statistics South Africa, the growth in the value of retail sales bottomed at 5.9% y-o-y during 2013Q4, but improved to 8.2% y-o-y by 2014Q3. The acceleration in the turnover growth of retailers can mainly be ascribed to rapidly rising food prices, as well as upward pressure on the prices of goods with a high import content (e.g. clothing, footwear, electronics, toys, pharmaceuticals and cosmetics) on the back of a weak Rand exchange rate.
Engelbrecht said that, "The results from the latest EY/BER festive season retail survey suggest that durable goods sales - furniture, household appliances, electronic goods and hardware - continued to mend in the run-up to the festive season." The durable goods sector, and furniture and household appliances sales in particular, has been the hardest hit by the dramatic decline in unsecured lending since the second half of 2012, but sales volumes have been edging higher in recent months.
The sales growth of non-durable goods retailers (e.g. food, beverages, tobacco, pharmaceuticals and cosmetics), in turn, will be boosted by a recovery in the disposable income of households on the back of a 9% (R1,17) drop in the petrol price and the end of the debilitating strikes in the platinum and engineering sectors. Given the substantial increase in food prices throughout 2014, food retailers in particular can also look forward to a significant improvement in the value of their sales during the 2014 festive season relative to 2013Q4.
In contrast to the slightly more upbeat outlook for durable and non-durable goods retail sales, retailers in semi-durable goods (e.g. clothing, footwear, CDs, toys and sporting equipment) have been reporting a significant slowdown in their volume growth since 2014Q2. The growth in clothing and footwear sales outperformed the rest of the retail sector for 2ý years between 2011Q4 and 2014Q1, but value growth has now slowed significantly from the double digit growth rates witnessed during this period. Clothing and footwear retailers posted robust value growth of 10.8% y-o-y during 2013 (compared to only 6.7% for total retail sales), but value growth slowed to 6.9% y-o-y in 2014Q3 (in sharp contrast to the recovery in total retail sales growth to 8.2% y-o-y in 2014Q3).
Another striking feature of the latest EY/BER retail survey results is the fact that the majority of retailers reported a substantial deceleration in selling price inflation during 2014Q4 relative to the first half of the year. According to Statistics South Africa, the CPI inflation rate accelerated from 5.4% y-o-y in 2013Q4 to 6.5% y-o-y in 2014Q2, but eased back to 6.2% in 2014Q3 on the back of lower petrol prices and a moderation in food inflation. The latest EY/BER retail survey results point to a further deceleration in inflation in 2014Q4.
Engelbrecht said that "While volume growth is expected to remain relatively subdued during Christmas, the reported improvement in the value of retail sales probably bolstered the confidence levels of retailers. Fifty-five per cent of retailers indicated that they were satisfied with prevailing business conditions in the run-up to the 2014 festive season, up from only 40% in 2013Q4 and 39% in 2014Q1."
"Looking forward, retailers remain cautiously optimistic that business conditions will improve further and that sales growth will continue to mend during 2015Q1. The deceleration in inflation is particularly positive news for consumers and will bolster the purchasing power of households in coming months. However, rising interest rates and tighter fiscal policy in the form of a further slowdown in government spending and higher taxes will keep a firm lid on the growth potential of the consumer sector during 2015," said Engelbrecht.
Business News Sector Tags: Retail|
