It is considered by many to be the most wonderful time of the year, but it is also one of the most costly. And while numerous institutions warn against frivolous spending this festive season – and accessing credit to do so – retail trade is booming just as the first advent calendars are cracked open.
Results from the latest festive season retail survey from top-ranked auditors EY and the Bureau for Economic Research at Stellenbosch University suggests that the growth in retail sales volumes are higher in the fourth quarter of this year than they were in the same period last year.
“The majority of retailers surveyed also reported that volume growth [this year] was similar, if not slightly better, compared to the 2013 festive season,” said Derek Engelbrecht, retail and consumer products sector leader at EY.
While volume growth remained modest in the fourth quarter of 2014, retail prices have been increasing at a much faster pace during 2014 compared to the 2013 festive season. “This points to a significant improvement in the turnover growth of retailers compared to the weak growth rate of only 5.9% year-on-year recorded in the fourth quarter of 2013,” Engelbrecht said.
This has boosted confidence among retailers, with 55% indicating they were satisfied with prevailing business conditions in the run-up to the 2014 festive season, up from only 40% in the fourth quarter of 2013.
Decline in unsecured lending
Statistics South Africa data shows the growth in the value of retail sales bottomed out at 5.9% during the last quarter of 2013 but improved to 8.2% by the third quarter of 2014.
EY said that the acceleration in retailers’ turnover growth can mainly be ascribed to rapidly rising food prices, as well as upward pressure on the prices of goods with a high import content, such as clothing, footwear and electronics, on the back of a weak rand exchange rate.
Engelbrecht said that the durable goods sector, and furniture and household appliance sales in particular, has been the hardest hit by the dramatic decline in unsecured lending since the second half of 2012, but sales volumes have been edging higher in recent months.
And the results from the latest festive season retail survey “suggest that durable goods sales – furniture, household appliances, electronic goods and hardware – continued to mend in the run-up to the festive season”.
EY expects that sales growth for nondurable goods retailers (such as food, beverages, tobacco and pharmaceuticals), will be boosted by a recovery in the disposable income of households on the back of a lower petrol price (it will drop a further 69 cents a litre this week) and the end of the strikes on the platinum mines and in the metal and engineering sectors.
Swear off credit cards
The South African Savings Institute has embarked on a campaign to encourage responsible spending during the festive season. It stresses that if people haven’t saved, they should not borrow to spend.
Wikus Olivier, debt counsellor at DebtSafe, also urged consumers to swear off credit cards. “Try to make it a rule of thumb to only purchase items in cash, especially during the festive season. If you cannot afford it in cash, then you should not buy it at all.”
Statistics from the National Credit Regulator (NCR) show that there is a clear peak in both the number of applications for credit as well as credit granted in the festive season.
Credit extension peaked near R120-billion in the fourth quarters of 2012 and 2013, and dropped down to around R100-billion in the first quarter of each following year.
Applications for debt counselling decline in December, but begin to ramp up from January.
In December last year the number of applications for debt counselling was recorded at 484 690. In January this year it rose to 493 616; in February and March it was 505 171 and 517 008 respectively.
The NCR receives fewer than usual complaints in January than normal, but the numbers increase between February and March of each year.
In December 2013, for example, the number of complaints it received was 191. This dropped to 115 in January 2014 but jumped to 385 in March.
Be wary of misleading terms
According to Hennie Ferreira, chief executive of MicroFinance South Africa, the microfinance business slows down at this time of year as some people get bonuses and use them to consolidate their debt or simply do not require credit.
“Some credit providers tighten the taps, knowing that January is a bad month because of expenses like school fees. I even have members who will close offices mid-December and many will not take new clients in December,” Ferreira said. “In general our sector is under pressure due to many structural issues and uncertainties, and we see an uptick in underground [illicit] activity.”
The NCR has urged consumers to be vigilant when entering into credit agreements over the festive period, and to be especially wary of “buy now, pay after three months deals”, said Mpho Ramapala, acting manager in the regulator’s education and communication department.
“Consumers should be wary of misleading terms in advertisements or direct solicitation for credit such as ‘no credit checks required’, ‘blacklisted consumers welcome’, ‘free credit’, ‘cheap credit’, ‘affordable credit’ [and] ‘low cost credit’.”
She said consumers should request a pre-agreement statement and quotation when applying for credit that will enable them to shop around and make comparisons.