There’s an anxious sense of Christmas Grinch, rather than good cheer, for retailers this year. And analysts predict a bleak trading season while people hunker down to buy basics and necessities.
It follows a muted Black Friday period during which BankservAfrica recorded a year-on-year decline in volume of more than 6% and a drop of more than 21% in value.
Evan Walker, portfolio manager at 36One Asset Management, expects an “exceptionally tough” Christmas, with corporate and bonus levels substantially down. He says a lot of big sectors such as platinum, gold and transport are experiencing huge problems, which means many won’t be receiving 13th cheques and performance bonuses.
In Walker’s view, discretionary items will take the biggest hit as people focus on necessities, while those who can still afford it might struggle to get their high-end clobber, such as sneakers, owing to the logjam at our ports.
“I think it will be quite bleak,” says Walker. Much also hinges on the amount of load-shedding that will take place in the next two weeks, as it will affect people’s ability to store food. The traditionally stalwart alcohol sales have come down substantially too as consumers have spent money on inverters, generators and paraffin. And, of course, we’re still at peak interest rates.
Independent retail expert Chris Gilmour says: “It’s difficult to see any real enthusiasm. Everywhere I look on the nondiscretionary side, it’s hand-to-hand combat.”
As for this year’s disappointing Black Friday, Walker says it’s no longer the aspirational event it once was, particularly as it has morphed into a month of so-called bargains.
Massmart customer research indicates that shoppers are looking for essentials and food leading to the festive period. But the company has also recorded a marked increase in the number of toys sold per basket from November to December. Massmart foresaw the impact of the peak period delays caused by the ports crisis, and placed orders earlier in the year.
FNB’s Wayne McCurrie cautions that the Transnet delays are negative for the whole country, not just for retailers. “The real problem for retailers this season is muted consumer expenditure and not really stock shortages. The effects of the port delays will be detrimental, but not as much as the state of the consumer.”
There are some retailers that are likely to do well; the only problem is, they’re not local. Think Shein, which continues to dominate South African apparel sales to the detriment of businesses in the country.
One retailer Gilmour says is managing to sail through it all is furniture seller Lewis. “The company looks interesting; it talked about the port congestion but its ability to keep on sourcing its materials is quite incredible and its ability to provide credit is what’s kept it going”.
Gilmour expects a lot of demand for credit over the Christmas trading period, as interest rates will probably stay pretty high until the middle of next year.
It’s difficult to see any real enthusiasm. Everywhere I look on the nondiscretionary side, it’s hand-to-hand combat
— Chris Gilmour
The bigger problem, says Casparus Treurnicht, portfolio manager at Gryphon Asset Management, is that consumers simply aren’t moving forward, due to the avalanche of obstacles they face — not least of which is a dead-end jobs market. “At best we might just hold on to a line that is becoming very thin,” he says.
“The South African consumer is heavily dependent on the first, second and third rounds of commodity prices, and these look OK compared with pre-Covid levels, but the wave of inflation that has followed eroded any benefit that was left.”
It means, Treurnicht says, that though the cost-of-living crisis is worldwide, South Africans are experiencing more pressure than people in developed countries. Walker, in turn, warns that the movement of food inflation “is stickier on the way down” than it was when it was going up.
There is one positive factor, says Sasfin’s Alec Abraham: tourism. Arrival numbers have picked up, and this supports retail sales and restaurant trade, though Abraham points out that tourist numbers are still about 20% below pre-pandemic levels.
As for big apparel retail, TFG CEO Anthony Thunström says: “While our customers still face economic pressure, and load-shedding continues to present uncertainty, we are optimistic about this festive season trading period.”
Thunström says TFG’s businesses all have enough stock to trade through the season, partly thanks to a cunning bet the retailer placed on developing its local manufacturing capabilities a while back. In fact, 75% of its goods are made in South Africa.
Certainly, a good Christmas would help inflate a mostly limp year for some of South Africa’s biggest retailers. Year to date, and including dividends, Mr Price is down 0.9%, Pepkor has dropped 3.7% and Lewis lost 3%. Spar fell 0.6% and Pick n Pay slumped 61%. On the bright side, Shoprite shares gained almost 20%, TFG rallied 9.8% and Woolies bounced 8.7%.
The major outlier is Truworths, which had surged an astonishing 45% by the time of writing.
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