Re­tail­ers un­der pres­sure as con­sumers tighten their belts

The Star Early Edition - - COMPANIES - Di­neo Faku

AS STUTTAFORDS, the coun­try’s old­est lux­ury brand, pre­pares to close down next month, re­tail­ers are ex­pected to come un­der pres­sure with South Africa’s tech­ni­cal re­ces­sion and ris­ing un­em­ploy­ment.

The cloth­ing sec­tor is un­der se­vere pres­sure – as cloth­ing is clas­si­fied as “dis­cre­tionary spend” from a con­sumer’s bud­getary per­spec­tive, mean­ing that when peo­ple are short of cash, they cut back in such ar­eas, Ste­fan Salzer, a part­ner and manag­ing di­rec­tor of Bos­ton Con­sult­ing Group South Africa, said yes­ter­day.

Salzer also said the en­try of in­ter­na­tional play­ers such as H&M, Zara, and Cot­ton On had put more pres­sure on lo­cal play­ers Mr Price, Tru­worths, Fos­chini and Ed­con.

Salzer be­lieved that the re­tail in­dus­try as a whole was un­der pres­sure from the re­ces­sion.

“Mar­ket pres­sures will re­main high, in­ter­na­tional en­trants will stay around – this is the ‘new nor­mal’ for which the re­tail­ers need to plan.

“This puts pres­sure on achiev­able sales prices – to sur­vive in such an en­vi­ron­ment, re­tail­ers need to be aware of this and of­fer great value (qual­ity for price) to cus­tomers,” Salzer said.

He also said re­tail­ers had to re­duce all ex­tra costs from their op­er­a­tions to re­main in a healthy prof­itabil­ity state.

Cur­rency swings

Re­tail­ers needed to un­der­stand their cus­tomer seg­ments in de­tail to de­sign their prod­uct range into the right “sweetspot” be­tween low prices and high qual­ity, he added.

“Given the fluc­tu­a­tion of the rand to the dol­lar and other cur­ren­cies, they need to plan for cur­rency swings when sourc­ing prod­uct from the Far East,” he said.

36One As­set Man­age­ment equity an­a­lyst Daniel Isaacs agreed, say­ing that com­pa­nies needed to try to make sure strained con­sumers could still af­ford to, and want to pur­chase their mer­chan­dise.

“The af­ford­abil­ity comes down to the price and credit avail­able,” Isaacs said.

“Pric­ing will be eas­ier, con­sid­er­ing the rand is stronger this year com­pared with last year, but credit is still dif­fi­cult with the change in af­ford­abil­ity re­quire­ments,” he said.

“The de­sire to pur­chase comes down to hav­ing more fash­ion­able mer­chan­dise than your com­peti­tors, which is be­com­ing more dif­fi­cult with in­ter­na­tional en­trants like Cot­ton On and H&M,” he said.

The 159-year-old fam­i­ly­owned Stuttafords chain will be clos­ing all its stores next month af­ter go­ing into busi­ness res­cue.

The com­pany has been re­port­edly de­scribed as South Africa’s Ko­dak, and lost rel­e­vance and mar­ket share to new en­trants and on­li­neshop­ping of­fer­ings.

South Africa en­tered a tech­ni­cal re­ces­sion last month when gross do­mes­tic prod­uct con­tracted 0.7 per­cent in the first quar­ter fol­low­ing a 0.3 per­cent con­trac­tion in the first quar­ter of last year.

The tech­ni­cal re­ces­sion comes with un­em­ploy­ment at 27.7 per­cent, a 14-year high.

It was also re­ported that Rand Mer­chant Bank and the Bu­reau for Eco­nomic Re­search in­di­cated that busi­ness con­fi­dence in the sec­ond quar­ter of this year had slumped to lev­els last seen in 2009.

It re­ported that the re­tail sec­tor’s con­fi­dence shed 10 in­dex points to 35 points, while sen­ti­ment among whole­salers had de­te­ri­o­rated 7 points to 49 points, pulled down by weak con­sumer spend­ing in the sec­ond quar­ter of the year.

PHOTO: JEF­FREY ABRA­HAMS

The front of Stuttafords in Canal Walk, Cape Town. The 159-year-old fam­ily-owned busi­ness is set to close its doors.

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