Dark clouds gather for punch-drunk retailers in South Africa
Retail sales in South Africa continued to decline for an eighth consecutive month, data from Stats SA shows – pointing to the sector being under continued pressure as households suffer the ills of high interest rates and a generally challenging economy.
And while demand for consumption credit remains high, banks are slowly closing the taps on easy access to it, which is likely to keep growth in the sector subdued for the rest of the year, says FNB.
According to Stats SA, measured in real terms at constant 2019 prices, retail trade sales in the country decreased by 0.5% year-on-year in August 2023.
Looking over a longer period, retail trade sales decreased by 1.1% in the three months ended August 2023 compared with the three months ended August 2022.
Seasonally adjusted retail trade sales increased by 0.2% in August and in the three months ended August 2023 compared with the previous three months, indicating a positive contribution.
FNB senior economist Siphamandla Mkhwanazi also noted that while the sales volumes declined by 0.5% year-on-year, this was at a slower pace compared to the upwardly revised decline of 1.0% in the previous month (revised from -1.8%).
“This outcome was better than the Reuters consensus expectation of -1.0%, but still marks an eighth consecutive month of annual decline in volume sales this year,” Mkhwanazi said.
The positive result on a seasonally adjusted basis points to the retail industry at least contributing positively to the 3Q23 quarterly GDP growth, albeit marginally.
“Nevertheless, the year-to-date volumes are still 1.8% lower, compared to the same period last year, underscoring the challenging consumer backdrop,” the economist said.
Four out of seven categories recorded a decline in annual volumes.
The largest declines were recorded among general dealers (-3.8% y/y, contributing -1.7ppts) and hardware material (-5.0% y/y, -0.4ppts).
Household furniture and pharmaceutical retailers declined by 1.6% and 1.2%, respectively, each detracting 0.1ppts from the headline number.
On the opposite end, a stronger performance by clothing and footwear retailers persisted, with 11.3% y/y growth in volumes, contributing 1.7ppts, supported by food and beverages retailers with 0.7%, and 0.1ppts contribution.
Other retailers grew by 0.5%, contributing 0.1 ppts to the headline number.
FNB said that credit data suggests that demand and supply for consumption credit, especially credit cards, remains strong, both in the bank and non-bank sectors.
“In addition, anecdotal evidence suggests that real wage growth might be turning marginally positive, for the first time since 2H21, largely due to slower inflation.
“If sustained, these could provide marginal support to shopping activity in the near term,” it said.
This is a positive indicator for the retail sector – but comes with the caveat that lending criteria are tightening in the country.
FNB said this will counteract much of the positive outlook as the cumulative impact of past interest rate decisions filters through, as well as depressed consumer sentiment.
“As such, we maintain our view of subdued growth in household consumption expenditure for the remainder of the year,” the bank said.
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