Pinched consumers eat now, pay later
TIGHT economic conditions and job losses have resulted in an increasing number of consumers using credit to buy food, Gareth Ackerman, co-chairman of the Consumer Goods Council of SA, says.
Consumers, especially those in the lower living standards measures, have fast become accustomed to using short-term debt to offset the loss of discretionary spending power.
“The consumer is stretched and struggling in a lot of areas … we (the Consumer Goods Council of SA) are estimating that anywhere between 30%-40% of consumers are using Capitec-type credit to buy food … this is not credit card-type credit,” Mr Ackerman, who also chairs Pick n Pay, said yesterday.
Overall credit extension has slowed since 2012 but those who have come to rely on unsecured credit have found other ways of accessing credit through shortterm loans and informal lenders to finance consumption.
Earlier this year, the South African Human Rights Commission said 50% of the country’s 19-million credit-active consumers had impaired credit records, which meant they were in arrears of three months or more. About 15% were described as debt stressed, or one to two months in arrears, it said.
In total, more than 11-million credit-active consumers were described as overindebted.
According to Mr Ackerman, the consequence of a tougher environment was that retailers were a lot more competitive.
“Everyone is fighting to maintain or increase market share and this means consumers are getting better deals now than they have ever got,” he said.
Revenue growth has slowed for local retailers, with the majority reporting softer figures this year. The latest EY/Bureau for Economic Research retail survey indicates a substantial deterioration in trading conditions across the retail sector during the third quarter.
Despite a welcome decline in fuel prices and recent respite from load shedding, business conditions in the retail sector continued to deteriorate over the period, Derek Engelbrecht, the consumer products and retail sector leader at EY, said.
The survey suggests that the growth in sales volumes slowed more than retailers had expected, notwithstanding their efforts to contain price hikes by cutting profit margins.
With selling prices now set to increase in the fourth quarter — adding to the strong headwinds already battering the South African consumer — most retailers expect weak volume growth during the festive season.
“A confluence of adverse economic developments has been putting renewed downward pressure on the spending power of households, including higher personal income tax and indirect taxes, job losses, significantly lower growth in government wages and social grants expenditure, rising inflation and interest rates, a sharp depreciation in the rand exchange rate and the slump in stock prices on the JSE,” Mr Engelbrecht said.