Record levels of load-shedding are thought to have cost South African retailers as much as R122bn in forgone sales this year. Without the relentless rolling blackouts, retails sales should have hit R1.36-trillion. Instead, they’re likely to nudge the R1.24-trillion mark.
This is according to research from the Bureau for Market Research (BMR), conducted on behalf of fintech funder Capital Connect, which brought together retail sales data and load-shedding time-series statistics to determine the effect of rolling blackouts on the retail sector.
It’s a trend that’s likely to carry through to the November 25 Black Friday sales. The BMR expects local retailers to generate about R17.3bn in additional sales for Black Friday this year. But, while that’s a nominal year-on-year increase of 6.7%, it’s still R5.4bn short of what they would probably have brought in without load-shedding.
Taken individually, the numbers don’t look that dire. General dealers, for example, are expected to pull additional revenue of R7.7bn over the Black Friday period, while clothing, textile, footwear and leather retailers are expected to up their sales by R5.5bn, and furniture, appliance and equipment retailers by R1.6bn.
But these amounts would have been far higher without load-shedding, by the BMR’s estimates. Even general dealers — expected to benefit most from Black Friday this year — are expected to lose out on about R577m in sales. Many of them will be in small towns or rural areas where, with little capacity to cushion the load-shedding blow, they have to reduce their trading hours due to power cuts.
Bigger chains are more likely to weather the storm, supported by their bulk buying capacity — but it’s still another knock for an under-pressure sector.
“When you look at the quarterly financial services and annual financial services, you’ll notice that the margins of the retailers over the past few years have shrunk dramatically,” BMR research director Prof Carel van Aardt tells the FM. “Producer price inflation is higher than CPI [the consumer price index], which means a lot of costs cannot be transferred to the consumer. And a lot of goods are now transported by trucks and not rail, with the consequence that prices have increased due to the diesel price, which has rocketed as well.”
With food inflation among the highest of the CPI categories, “consumers had to fork out more money to buy the same thing, and that squeezed out a lot of other expenditure”, he adds.
This squeeze on consumers — the result of a stagnating economy, rampant unemployment and rising inflation — means Black Friday this year “is about shopping for survival”, says Van Aardt.
He sees this playing out in increased demand for essentials — to the benefit of general grocers selling items such as bread, milk and basics — and a move from expensive brands to white-label brands and affordable substitutes.
Frugality is increasing across the board, says Momentum strategic insights consultant Monique Schehle. That’s reflected in the changing buying patterns of the consumers surveyed in this year’s “Momentum SMME & Side Hustle Survey”.
“Lower-income household purchases are focused on basic items, while higher-income households are looking at ways to reduce their cost of living from electricity and water,” she tells the FM. “Though what is deemed a necessity differs per income group, most households are not immune to financial pressure.”
Given the load-shedding crisis, Van Aardt also expects top sellers to include the gadgets and equipment that help consumers to navigate the blackouts. Think solar panels, generators, inverters, batteries, uninterrupted power supply (UPS) units, solar lanterns and even candles.
As it is, inverter sales have shot up 56% from a year ago, generators are up 29%, UPS sales 29% and solar systems 34%.
With a stagnant economy, rising inflation and high unemployment, consumers across the board are becoming more frugal. Necessities and load-shedding gadgets are likely to be the winners on Black Friday
— What it means:
But load-shedding is likely to affect retailers in other ways too.
36One Asset Management portfolio manager Evan Walker tells the FM load-shedding has forced many into flexible work arrangements, with a no-work no-pay principle. And because more people are shopping online instead of heading into stores, they don’t visit adjoining stores or buy additional items that perhaps weren’t on their initial shopping lists.
It’s all about the psychology of retail, Walker says. The promotions “bring people in [to the stores], but this tends to be a bit of an advertising ploy more than a consumer binge”. While retailers do make money from the higher volume of sales on Black Friday, they also cash in on customers buying products that aren’t discounted while they’re in store.
National Debt Advisors CEO Charnel Collins describes this as the “loss leader” approach: shoppers “lose the apparent savings [on sale items] by purchasing other, nondiscounted items”.
In many cases, the discounts may not be as exceptional as one might imagine. As Collins explains, Black Friday is often not the biggest discount shopping day of the year.
“There are far better discount opportunities throughout the year,” she says. “Many retail outlets inflate prices just before Black Friday to create the illusion that prices have decreased dramatically on the day.”
It’s also often the surplus stock that is heavily discounted on the day — items that would in any case have been marked down at some point to ensure they move off-shelf.
“Margins are eroded for some items,” says Walker. “[Retailers] may take a hit to the margins, but they’d have to take a hit with markdowns anyway.”
In some cases, it’s the suppliers that partially subsidise the Black Friday specials to shift stock, says Protea Capital Management CEO Jean Pierre Verster. “Retailers have a small net profit margin, while a supplier or manufacturer normally has a higher margin,” he says. Because the margin on electronic goods tends to be wider, these are normally the big-ticket Black Friday items.
On this count, the US will be particularly interesting to watch this year, says Walker. As a result of a consumer binge during the pandemic, retailers kept ordering additional stock. But with many of those items delivered late, they’re now sitting with a huge glut of products — which will probably be promoted this year as Black Friday specials.
Perhaps as a result of the stagnating economy, and increasing logistical hassles, there’s been a move to extend the Black Friday period to maximise sales. As Van Aardt tells it, interest in Black Friday offerings picks up from late October already.
“The traditional Black Friday is not so strong any more,” he says. “It should be referred to rather as ‘Black November’, with Black Friday in between.”
While a number of retailers have extended their promotional period beyond a day — or even a weekend — others are sticking strictly to the Black Friday ethos.
Game, for example, is returning to a one-day-only strategy after two years of month-long Black November deals. The retailer plans to open most of its 108 South African stores from midnight to 8pm on November 25.
“Following the success of our inaugural ‘Halfway Day’ sale in July, it has become clear to us that the South African consumer is ready to return to one-day sales,” says Game vice-president Andrew Stein.
He adds: “This is an important day for our business and our consumers as they look to find the best possible deals on the items they need and want.”
For Pick n Pay, too, Black Friday is its single biggest trading day, with R800m in sales on Black Friday alone last year. This year, the retailer expects customers to be on the hunt for value, after a tough year, says group marketing executive Andrew Mills.
[Black Friday this year] is about shopping for survival
— Carel van Aardt
Amid the Black Friday noise, however, many in the finance sector sound a word of caution.
Tonia Pavlou, deputy CFO of consumer finance firm RCS, says South Africans shouldn’t think of Black Friday as the day to make up for lost time when it comes to spending. Instead, it should be thought of as a chance to take stock and make a financial plan that will see them to the end of the year “without incurring unnecessary debt”.
It’s an important point. The Reserve Bank says South Africans’ household debt-to-income ratio is 75.1%. The added pressures that the pandemic placed on consumer pockets, compounded by an unstable geopolitical climate, means overspending on Black Friday is not a wise option.
It’s not all bad, says Collins. There are ways to access great deals on Black Friday, and save on holiday spend. But, she cautions, “consumers should avoid buying on credit all in the name of Black Friday”.
As always, there are some interesting shopping statistics around Black Friday.
For example, top-selling deals in the Shoprite group from last year included everything from Omo automatic washing powder and Jacobs instant coffee to Coca-Cola and Philips air fryers.
Air fryers loomed large for online retailer Takealot too. It sold 5,000 on Black Friday alone. By “Takealot Tuesday”, just four days later, enough air fryers had been sold to kit out every home in Ermelo.
Last year, FNB noted that sales were up 15%-19% on Black Friday, while online payment platform PayFast saw transaction values spike more than 30%. PayFast recorded a surge in spending on electronics of more than 120%.
As for the year ahead, Paul Behrmann, CEO of buy-now, pay-later outfit Payflex, says a recent customer survey showed about 90% of respondents plan to spend more online this festive season, while 78% plan to shop on Black Friday.
— Black Friday 2021 went better with Coke
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