Optimism for better trading
Despite tight household budgets and muted economic growth prospects, retailers and traders are optimistic for an improved trading outlook this year, according to Consumer Goods Council of South Africa (CGCSA) chief executive Gwarega Mangozhe.
Mango zhe said consumers are still grappling with high debts which have affected disposable incomes available for day-to-day expenses, let alone to make big ticket purchases.
“January is normally a difficult month for many households due to the higher than usual expenses associated with festive spending and education expenses. Naturally, the low-income families are always the worst affected,” said Mangozhe.
He said despite expectations of a marginal recovery of household finances, many households would continue to face pressure this year because of debt. He said council members’ focus was to provide value to consumers by improving efficiencies and passing on the resultant savings to consumers through discounted and special prices on selected basic and non-basic products.
“We expect this trend to not only continue during 2017, but to become the norm as the competitive landscape is changing because cost-conscious consumers are now always searching for bargains.
“Overall, the CGCSA hopes for a better performance of the economy as output in key sectors such as manufacturing improves. The welcome end of the drought will, over time, have a positive impact on food prices and food inflation,” he said.
Mangozhe’s view was mirrored by the South African Council of Shopping Centres (SACSC).
Amanda Stops, SACSC chief executive, said leading indicators pointed to improved conditions for retail this year.
Stops said according to research undertaken for the council, the latest EY/BER Retail Survey, showed conditions in the retail sector had improved during the third quarter of last year, after a sharp deterioration in the second quarter.
“The SACSC economic brief highlights the direction the overall economy is taking and how this impacts retail and consumers.”
According to Christo Luüs of Ecoquant, who conducted the research, improved conditions were most notable in the non-durable goods category. Luüs said consumers’ real disposable income remained under pressure, while high food price inflation prompted them to reprioritise spending on essentials. As a result, retail sales volume growth has slowed over recent months.
“Weak underlying consumer demand is flagged by weak job creation, slow disposable income growth, slowing credit extension and low consumer confidence levels. As retail sales inflation continues to rise, consumers’ purchasing power will be eroded,” he said.
“Growth in sales of discretionary items is expected to show further weakness in the early months of 2017, while growth in the sales of essential items is likely to slow.
Durable goods consumption may show somewhat stronger growth off a very low base,” said Luüs.
MMI Holdings’ economists Sanisha Packirisamy and Herman van Papendorp said last week in their latest monthly economic and market snapshot that consumers are still unwilling to spend on big ticket items.
“In line with consumers anticipating a better outlook for the economy, households’ expectations of their personal financial position a year from now improved markedly.
2017 Could be the fourth year of per capita recession
The largest drag on the headline index was the unwillingness of consumers to purchase big ticket items such as furniture, appliances and electronic goods.
“The BER (Bureau of Economic Research) attributes the weak uptake of durable goods to subdued sentiment, rising interest rates, moribund credit growth and more expensive imported durable goods, thanks to previously sustained rand weakness.
“Elevated food prices have eroded real wage gains for low-income consumers, while financial institutions have tightened credit-lending conditions at this end of the market,” they said.
Debt Rescue chief executive Neil Roets said the recent BankservAfrica Economic Transaction Index (Beti) report showed South Africans had seen their incomes decline in real terms for the past three years on average.
“All these indications suggest that 2017 could be the fourth year of the per capita recession. It seems sad that we have to be pessimistic at such a happy time of the year but the sooner consumers realise the economy is in trouble and tighten their belts, the fewer of them will have to come to us to bail them out by placing them under debt review,” said Roets.
He said many South Africans who could barely make ends meet during the year were plunging themselves even deeper into debt during the summer holidays season by spending money on expensive holidays, often on credit cards or with money borrowed from money lenders at exorbitant interest rates.