While South African retailers this Christmas season can expect an increase in sales volumes, lower price increases and even price decreases will likely see turnover increase at a much slower rate than in 2002.
This is the finding of a Christmas retail survey conducted by the Stellenbosch-based Bureau for Economic Research (BER), sponsored by audit and business advisory firm Ernst & Young. The results of the survey were presented to a briefing in Johannesburg on Wednesday.
While total turnover in the retail sector increased by 13,4% in 2002, an increase of 5,3% is likely this year, the survey found.
The increase in sales volume is seen almost doubling to 5% from 2,7% last year, but prices are only expected to increase by 0,3% from 10,4% in 2002.
“The lower sales growth could hurt the bottom line of retailers, as costs such as wages, salaries and rental expenses have increased considerably compared to last year,” said Ernst & Young’s Jaco van der Walt.
Van der Walt told the briefing that the picture was rosier for retailers at the top-end of the market. Consumers there had seen their disposable income increase due to lower personal taxes and this year’s 500 basis points cut in interest rates.
They were likely to spend more on luxury goods, with the strong rand resulting in lower prices of imported items.
He continued, however, that job losses and the uncertainty that accompanied them had led to a fall in consumer confidence in the lower-income mass market.
With consumers at the top end of the market spending on luxury goods and those at the bottom end cutting spending, mid-range retailers might feel the pressure, Van der Walt asserted.
BER senior economist George Kershoff noted that Christmas was a crucial time for retailers, with sales picking up in October and peaking in December.
“With the high base set in 2002, it will be very difficult for turnover to at least grow at the same rate,” he said.
Looking beyond Christmas, Kershoff said that retailers faced the challenge of how to sustain profitability in an environment of low price increases or even price decreases.
“I think the only way to do this is to increase productivity — of labour, of space and of inventories,” he concluded. — I-Net Bridge