Consumers warned: with price increases on horizon, don’t buy what you can’t afford
THE WESTERN Cape’s festive season is likely to see a mixed bag of results with low consumer confidence and over-indebted- ness leading to moderate retail sales, but the province’s tourism sector is set for a bumper season, say experts.
First National Bank economist Alex Smith said the growth in retail sales will be moderate over the festive season.
“We are seeing decent growth in demand for semi-durable goods and, to a lesser extent, non-durable goods. However, sales of durables have been under significant pressure of late.”
Smith said this reflects a low level of consumer confidence and lack of credit demand and supply while consumer debt- to-income ratios are currently high.
He said taking on credit to procure an asset like a house is a good idea if the repayments are affordable; however, using higher cost unsecured credit to buy goods for consumption is not advisable.
“We expect that interest rates and inflation will rise further next year, so consumers are advised to save a little extra in order to guarantee financial security in 2016.”
Philip Krawitz, executive chairman of the Cape Union Mart Group, said higher interest rates, electricity price hikes, increased costs of imported merchandise and the advent of a raft of new international entrants to South Africa’s market, will all take a bite out of the country’s consumer cake.
He said the consumer cake is boosted by an increase in the black middle class from 1.7 million to 5.1 million over the past five years.
“However, rampant unemployment and stricter credit have all had the effect of shrinking the size of that cake. The bottom line is that retailers will have to fight harder for a growing stake in a consumer market which is clearly under pressure. Our K-Way manufacturing operation has increased production to over 500 000 garments per annum and this has cushioned us against increased import costs.”
Krawitz said, ultimately, the South African consumer market will resume its growth and the country will face a crisis of local supply rather than a crisis of local demand.
Stephen le Roux, retail divisional director for Growthpoint Properties, said although the economy was not conducive to big binge buying over the festive season, there was a good chance retail sales would be up on last year, albeit marginally.
“Unless there’s a marked deterioration in the JSE or a political black swan event, retail spending from the upper end of the market will be relatively good. This market segment will most likely spend money on electronics and technology, as they have in the past.”
Le Roux said despite the relaxation of South Africa’s visa regulations, tourist numbers are unlikely to recover for several months. “This may impact holiday retail in the Cape Town area. In popular holiday and seaside destinations, foul weather is bad news for holidaymakers but great news for shopping malls.”
Deidre Davids, spokeswoman for Airports Company South Africa, said the airport was expected to be busy this peak season (October to March) with seasonal flights, with many international airlines having
commenced their Cape Town routes.
She said the total arriving passengers for last month was just under 440 000, signalling a 10 percent increase compared to the previous year. Domestic arrivals grew by 9 percent and international arrivals grew by 18 percent. “All indications are set for a bumper summer season. We forecast for the calendar year for 2015 passenger volumes of just over 9-1 million.”
Fedhasa (Federated Hospitality Association of South Africa) Cape chairman Rob Kucera said with the visa law changing recently, it would be easier to travel to South Africa. He added that with the weaker rand, most South Africans will holiday in the country.
“The booking pace has definitely increased. Cape Town as a whole is looking a lot more positive than three months ago.”
Bruce Deneys, director for sales and marketing at the Pepperclub Hotel & Spa, predicts a good season for the hotel sector.
He said although the visa regulations have been lifted, it may have come too late – however, it will help for next year’s season. “Cape Town hotels are very full.”
He added that the film sector in Cape Town was very buoyant.
Consumer activist Ina Wilken said with the festive season looming, consumers are facing tough times as they don’t know what lies ahead for them next year. They should be wary of spending any money on goods and services unnecessarily, she added.
“It is not necessary to go on holiday except if you had already paid for it in full. Don’t borrow money to buy things you would normally not buy, don’t buy just because it is the festive season and because your neighbour and friends are having a spending spree.”
Ian Wason, chief executive of debt counselling firm DebtBusters, said the latest second quarter Consumer Credit Market Report showed that the number of loan applications has increased 17 percent year- on-year, while the number of rejected applications rose by 25 percent in the quarter to 6.8 million. In addition, the report showed year-on-year growth in short-term credit of 205 percent to nearly R4 billion.
Neil Roets, chief executive of Debt Rescue, said the company observed a trend where consumers could not afford to pay school fees or buy school uniforms in January because they overspent during December. “People spend because it’s holidays. They are of the opinion that they deserve to go on holiday even though they did not plan for it financially and cannot afford to do so. In January they find themselves in a serious, financial predicament.”
Roets said the number of people with impaired credit records or arrears on one or more account increases every year, with the current figure on 10.26 million consumers, according to the National Credit Regulator’s statistics.