Building material losing lustre

Building material retailers’ resilience has impressed during tough times over the past two years versus their apparel counterparts. But their ability to buck SA’s retail malaise is being tested.

For hard-pressed consumers, it is becoming prudent to prioritise spend on groceries over revamping homes. This is evident from major building material retailers’ downbeat sales updates.

Italtile – via its CTM, Italtile Retail and Top T brands – is the latest retailer to feel the pinch.

Although system-wide sales in the year to June 30 grew 4% to R6.21 billion, sales volumes have faltered. Italtile pulled in 2.7% like-on-like retail store turnover growth, with 4.3% average price inflation, which means real sales volumes fell 1.6%.

Home renovations and building account for about 70% of Italtile’s business. The retailer’s challenges include declining spending by middle-income consumers.

Arguably, this sector may not be the growth vector, if home building figures are anything to go by. According to Stats SA, the number of building plans approved for new houses declined 6.2% year-on-year between January to May 2017.

Electus Fund Managers equity analyst Damon Buss said although consumer confidence has improved since 2015 lows, it’s unlikely to improve materially given increasing political uncertainty. Further, real wage growth in private and public sectors has faltered since early 2016.

The rand strengthening 13.1% against the US dollar during Italtile’s reporting period resulted in a glut of merchandise introduced by competitors, who rely on imports. Roughly 85% of Italtile’s merchandise is locally sourced.

“We are ... entering a price deflation period in some of our merchandise categories,” said CEO Jan Potgieter. He believes its local sourcing will be a boon, as “there’s a bigger scenario of the rand weakening than strengthening”.

Rivals Cashbuild and Massmart’s Massbuild (under brands Builders Warehouse, Trade Depot, Superstore and Builders Express) are also feeling the pinch.