The confidence levels of South African retailers soared to a 16-year high of 80 index points in the second quarter of 2004, jumping 15 points from 65 index points during the first quarter of the year, according to the results from the latest Bureau for Economic Research (BER) retail survey.
Business confidence is calculated as the gross percentage of respondents that rated prevailing business conditions as satisfactory, meaning that 80% of the BER’s respondents in the retail sector rated prevailing business conditions as satisfactory.
Unveiling the results of the retailer survey on Thursday, BER economist Linette Ellis said that after having slipped from 68 to 65 index points during the first quarter of 2004, the increase in retailer confidence during the second quarter could probably be ascribed to strong retail sales growth in recent months. Retail trade statistics from Statistics South Africa indicated that retail sales volumes increased by an impressive 6,4% year-on-year during the first quarter of 2004.
Official statistics for second quarter retail sales were not yet available, Ellis noted, but the BER’s survey results suggested that the consumer spending spree continued during the second quarter of 2004. The BER’s respondents in the retail sector reported that the growth in sales volumes of non-durable goods (such as food, beverages and groceries) accelerated considerably during the second quarter.
“Lively sales of food, beverages and groceries can probably be ascribed to relatively subdued price increases in these categories, as well as high real wage settlements and increases in social grants, which raise disposable income.”
In contrast, sales growth in the durable goods category (including furniture, household appliances, electronic equipment and jewellery) eased substantially from the heady rates registered during the second half of 2003 and the first quarter of 2004. According to Ellis, durable goods sales had been benefiting from the stronger exchange rate and low interest rates.
The strengthening of the rand enabled retailers in goods with high import content, such as electronic goods, to lower their selling prices, while the decline in the prime overdraft rate during 2003 lowered debt-servicing costs.
However, it appeared as though many consumers were now stocked up on furniture, household appliances and electronic equipment, and consequently durable sales growth had started to slow to a more sustainable level.
Although the growth in sales volumes of semi-durable goods such as clothing and footwear also edged lower, it nevertheless remained relatively lively during the second quarter.
Ellis added that another striking feature of the second quarter survey results was that most retailers were no longer reducing their selling prices in an attempt to attract customers. This suggested that South Africa could be at a lower turning point in the inflation cycle and that inflation could accelerate over the short term.
Sturdy growth in sales volumes and slightly higher selling prices were boosting profitability in the retail sector.
“The BER’s latest retail survey results foreshadow a sustained strong retail performance. Supported by low inflation and interest rates, consumer demand is expected to remain lively during the second half of the year,” she said.
The second quarter survey was conducted between May 17 and June 8, 2004, and covered roughly 540 regular participants in the retail sector. – I-Net Bridge