Festive season could be better than expected for some
SOUTH AFRICA’S RETAILERS may surprise the markets on the upside when they report on their festive season performances. There were fears of another subdued Christmas in 2010, mainly arising due to inconsistent shopping trends in the latter half of the year. However, current market sentiments suggest the recent festive season won’t only confirm consumers have recovered but will also indicate the strength of the recovery. Retailers are still adding up their figures but many are optimistic.
“We’d be very surprised if retailers don’t post better numbers than they did over the previous two Christmas periods, given that interest rates have been cut (again) and GDP growth rates have been trending upwards since December 2009,” says Nino Frodema, a portfolio manager at Metropolitan Asset Management. He adds that if the relatively strong November retail sales data is anything to go by “we’d expect that momentum to follow through into December”.
Chris Gilmour, a retail analyst at Absa Asset Management Private Clients, says against all concerns of high household indebtedness and stagnant employment, sales updates released by retailers late last year raised hopes for better festive trading. “With all things equal, it’s reasonable to assume it was a much better festive season,” says Gilmour. “All economic indicators are pointing to an improvement. Yes, we’re still grappling with household debts and unemployment. But most people are no longer worried about losing their jobs. We’ve also had above-inflation wage increases, which must have helped consumers.”
That should sound encouraging to retail investors. But the retail basket on the whole is an assorted mix. Thus it would be naïve to expect a wholesale grand performance from all over the festive season. For example, while 2009 was generally tough for the whole industry, there were retailers who punched above their weight. But others didn’t even smell the all-important festive season trading.
Frodema says players in the semidurable discretionary market (clothing and footwear) would most likely be the “star” performers in retail sales sub-categories over the Christmas period, with high single digit growth rates. Clothes generally feature prominently on consumers’ shopping lists for Christmas. “That means we can expect good numbers from apparel retailers Truworths, Mr Price and Foschini. In particular, it would be interesting to see what Foschini would report after its revamping of its supply chains. Its sales update in the lead up to the festive season was encouraging.” Unlisted Edcon, which owns Edgars and Jet, has been reportedly losing market share to those retailers.
Furniture retailers must also have improved on last year’s figures. Gilmour reckons JD Group’s chasing high value items – such as video and plasma TVs – must have boosted its top line during the period. JD, unlike its smaller rival Lewis, never had Christmas last year. But it’s on the road to recovery.
Food retailers are a little worrying, despite being defensive stocks. They’re troubled by rising costs in an extremely soft food inflation environment, which was the case throughout 2010. That makes it unlikely that grocers (perhaps except the Shoprite group) would have seen double digit sales figures over Christmas.
However, health and beauty group Clicks will, in all likelihood, punch up with double digit figures.