There is no end in sight to the consumer spending boom that has driven the economy for the past two years. Financial results released by food, clothing and furniture retailers recently show that, at best, we are in the middle of a phenomenon that will only be fully explained in hindsight.
Lewis stores and the JD Group, Famous Brands, Tiger Brands and Edcon all released results that show the benefits of a sound economy, the growth of the black middle class and, on closer inspection, the second economy fuelling growth unnoticed.
Edcon CEO Steven Ross probably comes closest to explaining what we are going through when he notes that government delivery in housing, water and electricity is partly fuelling the good times. This is because of the stimulus housing provides to the demands for electronic and white goods as well as furniture that housing provides.
Newly-listed Lewis Stores lifted profit by 42,3% to R409-million. Furniture sales, which account for half the group sales, grew by 16%, while electronic and white goods, or stainless steel in the case of high earners, grew by 20%.
The JD Group, owners of Russells, Joshua Doore and Morkels, among others, reported a ‘substantial increase in unit sales” to increase operating profit by 37% to R936-million in their six months to February.
Clothing retailer Edgars crossed the R1-billion profit mark for the first time as it continued its amazing turnaround story, one which coincides with historic low inflation and interest rate and tax breaks.
Evan Walker, retail analyst at Andisa Capital, notes that across all three groups, there is evidence of ‘informal employment that the market is not telling us about”. Walker says that, across the groups, like-for-like cash business grew robustly. In the case of Lewis and JD, cash sales grew by 25% and for Edcon, at roughly 16%.
Food retailers are having an equally good time and, more importantly, reflect the emerging middle class assimilation to their newfound affluence. Famous Brands, the owners of Wimpy and Steers, doubled their profit to almost R82-million. So bullish is the group that it expects to open another 500 outlets in the next five years, creating some 9 700 jobs.
The group said its confidence is founded on the fact that more people are taking to dining out.
Finally, Tiger Brands, they who cram 36 tomatoes into a bottle of All Gold, pushed profits up 73% to R704,3-million. A distinguishing feature of the growth is that it was driven by volumes and virtually no price increase on average.
Although retail sales for February grew at a modest 5,4 % year on year, Walker expressed miniscule concern. With food inflation running at below 3%, inflation seems under control. And the fact that oil prices have been moderate since the last interest rate cut in April, should be beneficial to the party-pooping petrol price. As long as retail sales growth is faster than population growth and, for the listed groups at least, sales growth beats gross domestic product substantially, the good times will be here for a while longer.