Grinch chokes retailers’ hopes
RESTIVE SEASON: CHRISTMAS SALES FAIL TO BOOST REVENUE
The retail industry in South Africa is worried after a dismal Christmas season failed to boost sales as expected.
2017 is lining up to be a bleak year if Christmas sales are anything to go by.
The grim trading updates from market darling Woolworths and fashion retailer Truworths were expected, but Christmas’ failure across the board to boost sales has the whole shopping industry worried. Disappointing Christmas sales reported by Woolworths and Truworths last week is a herald of a wider malaise.
Empty pockets
As Sasfin’s senior analyst Alec Abraham puts it: “Consumers simply don’t have money and there’s less money going around for all retailers, especially apparel retailers.”
Woolworths’ group sales for the year’s first 26 weeks ending December 25 increased by 6.7% compared with the prior year. Its update reveals difficult trading conditions continue to hurt the clothing category above food. Excluding inflation, like-for-like sales in clothing/merchandise and food declined by 6.1% and 3.6% respectively.
Woolworths’ sales were largely boosted by inflation – 7.3% in the clothing and merchandise category vs 9.2% in food – and the rollout of new stores.
The retailer has been described by market watchers as defensive, given its something-for-everyone retail model.
“Consumers are directing a lot of their spending to basics, such as food, instead of discretionary items like clothing and furniture, given the pressures they are facing,” says Abraham.
Massmart appears resilient. The operator of Game, Makro, DionWired and Builders Warehouse, among others, reported sales growth of 7.7% for the 52 weeks to December 25, while comparable store sales increased by 5.4%. Massmart’s focus on store expansion locally and into Africa has put it in good stead.
In 2016 3Q, real household consumption expenditure – a key driver of economic growth – grew just 1.1%, Reserve Bank figures show. Household consumption growth, which accounts for more than 50% of SA’s GDP, has muddled along since the 2008 financial meltdown. Disposable income continues to be eroded by a heap of unsecured debt.
Fashion retailer Truworths is battling stunted sales and a turning credit cycle.
Group sales for the 26 weeks to December 25 increased by 21% to R10.2 billion. However, Truworths’ like-for-like retail sales (excluding Office Retail Group) decreased by 3%.
Truworths’ credit sales, which represent 69% of group sales, have been under pressure since it began to implement the National Credit Regulator’s new affordability assessments.
Woolworths and Truworths are wrestling with market share gains by international retailers, including Zara and H&M, and the aggressive discounting and promotional activity by competitors.
Back to basics
Says Kagiso Asset Management’s associate portfolio manager, Simon Anderssen: “It will take a season or two for these issues [discounting by competitors] to settle down and we expect Woolworths’ South African apparel business to lose market share.”
For Woolworths and Truworths to ride out SA’s retail slump, both need to focus on retail basics, says Abraham.