Higher taxes take a toll on retail index

The JSE’s general retail index, which includes the likes of Woolworths and Mr Price, has posted its worst rolling threemonth period since the end of 2013, as depressed consumer confidence and a brewing USChina trade war ruin projections of a significant uptick in consumer spending.

Since higher taxes and the VAT increase took effect at the beginning of April, the JSE’s general retail index has lost 20%, more than twice that of banks, weighed down by a weaker rand and pressure on emerging market equities.

The rand has depreciated about 15% over the same period, also under pressure from tightening global monetary policy.

Analysts maintain recent disappointing economic data have underscored that consumer activity is not picking up as fast as previously hoped. Although there may be some improvement, the sector is far less rosy than it appeared in January. Since the beginning of 2018 general retailers have lost 13% and food and drug retailers about 19%, compared with the all share’s 5.46% loss.

Most listed retailers were operating on very high price-toearnings multiples, and the market expectation was that they would experience robust growth in 2018, said Sasfin Securities senior portfolio manager Nesan Nair.

These expectations were based on the confidence boost resulting from the outcome of the ANC’s elective conference in December, but among other factors, recent data and a rising oil price had put a dent in sentiment, he said.

Although some of the underperformance by retailers was self-inflicted, a significant amount resulted from the selloff in emerging market assets, said Argon Asset Management equity analyst Bjorn Samuels.

Company reports, as well as interactions with management, also pointed to generally poor trading conditions, including low volumes despite product deflation, he said.

Statistics SA said earlier in June that retail sales grew 0.5% in April, well below consensus expectations of a 4.5% rise on an annualised basis.

This slowdown was broad based and not attributable to prices, analysts said, as retail inflation slowed to 1.7% in the period, well below the overall rate of consumer inflation.

The delayed increase in government salaries could boost retail to the middle of 2018, but the sector was likely to struggle to gain momentum in coming months, said Stanlib chief economist Kevin Lings.