How retailers and consumers view the festive season

Comparing some retail sales numbers released by Statistics SA with the results of the Bureau for Economic Research (BER)/Ernst & Young Festive Season Retails Trends survey, it appears that well-off consumers are opening their wallets in time for Christmas.

Retail sales dropped by 3,4% this time last year, but they rebounded by 4% during the first nine months of this year.

“Based on historical corrections, this suggests that festive season retail sales volumes should increase by more than 5% compared with the weak 2009 holiday trading period,” said Derek Engelbrecht, retail and consumer products sector leader at Ernst & Young.

The best news is that retailers are expected to cut prices—the net majority of survey respondents said selling price increases will be lower than they were in 2009.
The retail sector has been under pressure and profitability levels are down, but consumers will spend more freely if goods are more affordable.

According to Engelbrecht, the biggest price discounts will be on durable and semi-durable goods—electronics, household appliances, furniture, clothes, footwear, toys, CDs and so on. “Because many of these goods are imported, the lack of retailer pricing power is partly a function of the sustained strength of the rand exchange rate,” said Engelbrecht.

Retailers anticipate that durable goods will sell well—the majority of almost 70% of durable goods retailers reported lower sales this time last year, compared with the 2008 festive season, but they now expect positive sales, particularly when it comes to big-ticket items. The interest-rate cut and wage increases, as well as the strong recovery of domestic share prices on the JSE, are expected to drive this.

Semi-durable and non-durable goods such as food, beverages and pharmaceutical products are also experiencing a turnaround in sales, though data suggests that general dealers selling non-durables are doing better than specialist food and beverage stores.

With job losses affecting South Africans this year, lower-income households have spent a larger proportion of their income on food than on other products. Non-durable retailers expect higher sales during this year’s festive season and semi-durable goods retailers also project higher sales.

Although we’re probably some way off the strong consumer spending we saw between 2004 and 2007, the retail sector appears to be bouncing back.

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