Clothing and footwear have been the largest contributor to retail trade since October 2022. (Waldo Swiegers/Bloomberg via Getty Images)
Even with high interest rates and a rising cost of living, consumers are still spending significantly on clothing and footwear, as evidenced by increased sales — most other major retail categories experienced declines.
Statistics South Africa’s latest retail trade data showed that in July, pressure remained widespread across most of the major retail categories, with the exception of clothing and footwear, which recorded a 6.8% year-on-year growth.
The phrase: “The largest positive contributor was retailers in textiles, clothing, footwear” has featured frequently in the statistics agency’s monthly retail trade reports since October last year.
The reason behind consumers’ continued spending on clothing while tightening their belts elsewhere, analysts say, is that clothing items are not as easy to substitute as, say, food items.
While households can substitute fresh meat with tinned fish and still be well fed, children will always need new clothes because they are growing or to adjust for changes of season.
“We’ve had the inflation problem over the past couple of months working against the consumer. What everybody was expecting is that people are going to use cash to spend on food and they’re going to cut back on discretionary items such as white goods, appliances and a little bit of clothing,” said Casparus Treurnicht, a portfolio manager at Gryphon Asset Management.
“Now, that happened on the durable goods side but not so much for clothing. Clothing has held up remarkably quite well.”
He gave the example of fashion retailer Truworths, whose recent financial numbers were in line with inflation because “they are not experiencing any volume pressure”. In contrast, food retailer Pick n Pay has been experiencing volume losses because people buy smaller food baskets in reaction to high food inflation.
“Clothing held up better than food,” Treurnicht said.
For fashion retailers, it is mainly shoes that have been doing well, noted Makwe Masilela of Makwe Fund Managers. “The buying of clothing has been seasonal as well, we’re just coming out of winter and people have to restock.”
Major global retailer Hennes & Mauritz (H&M) reported a pickup in quarterly profit margins on Wednesday for the nine months to the end of August, again pointing to the clothing retail sector’s resilience in the face of economic turmoil.
H&M chief executive Helena Helmersson said sales in the third quarter started strongly, with pent-up demand for summer garments following a cold month of May.
“Having now moved into September, we can see that the start of the autumn season has been delayed because the month so far has been marked by unusually hot weather in many of our European markets. Clothing sales are anticipated to fall by 10% year-on-year measured in local currencies in September,” she said.
Stellenbosch University’s Bureau of Economic Research (BER) released its quarterly retail trade survey this week, showing that retailer confidence improved to 32% in the third quarter of 2023 from 20% in the second.
Semi-durable goods sales continued a growth trend that had emerged since the lifting of Covid-19 lockdown restrictions. Explanations for this included a recovery in employment — 412 000 jobs were created in the first half of 2023, which would have bolstered clothing and footwear sales growth, in particular.
In addition, clothing and footwear inflation was only 3% in the second quarter, below the headline CPI inflation rate. Demand for apparel associated with the 2023 Rugby World Cup this quarter is also likely to boost sales among sportswear retailers.
The BER said there might be further improvement in retail sales in coming quarters if headline CPI continued to move towards the South African Reserve Bank’s target range, and the Bank maintained its pause on interest rate hikes.
Headline Inflation rose slightly to 4.8% year-on-year in August, from 4.7% in July, which was the lowest reading in two years in July.
“I don’t think it will shoot the lights out but demand for clothing will continue and the clothing retailers will continue to do just okay,” Masilela predicted.