Sales point to poor outlook
The rest of the year is bound to be uncertain for local retailers, with many of the problems encountered towards the end of 2016 resurfacing and worsening.
The rest of the year is bound to be uncertain for local retailers, with many of the problems encountered towards the end of 2016 resurfacing and worsening. This is reinforced by the latest Statistics SA data, which show retail sales in February 2017 declined 1.7% compared with sales in February 2016.
This comes after January’s 2.3% year-on-year drop. Once again, retailers in textiles, clothing, footwear and leather goods recorded the sharpest decrease at 7.6% — worse than the 6.5% fall in sales of household furniture, appliances and equipment.
EY consumer products and retail sector leader Derek Engelbrecht said an overtraded clothing market resulted in squeezed margins and falling volumes.
Based on the most recent six-month results, the listed clothing retailer that was hit the hardest was Truworths. Mr Price Group’s margins and volumes declined slightly, while TFG held both steady.
“Clothing retailers face a multitude of challenges: increasing foreign competitor presence and scale; renewed price pressures as the currency depreciates and changing consumer expenditure,” he said.
Local clothing retailers were increasingly competing against astute international brands, which had turned seasonality upside down. “Seasonality for them is four to six weeks and they’ve got some new things on their shelves,” Engelbrecht said.
Unlisted retail companies have not fared better than their listed counterparts, with both parts of the market battling.
Electus Fund Managers equity analyst Damon Buss said Edcon had poor sales densities at R17k/m² compared with the industry average of R30k/m².
“Large international fashion retailers have also entered the market … and have offered more fashionable product at much better value and hence have taken a significant portion of Edcon’s market share,” he said.
SEASONALITY FOR THEM IS FOUR TO SIX WEEKS AND THEY’VE GOT SOME NEW THINGS ON THEIR SHELVES
The state of the economy meant Stuttafords products were too costly. Buss said another problem was that the customer base that could afford its products travelled internationally, “where they can purchase the same or better products at far cheaper prices”.
Economists at Investec said retail sales were likely to experience only a “mild lift” in 2017.
“Consumers’ ability and willingness to spend will likely be further constrained by high unemployment, elevated existing levels of indebtedness, weak rates of credit extension to household and persistently depressed consumer confidence,” said Investec economist Kamilla Kaplan.