SHOPS BUCKLE UNDER EXPENSE PRESSURES
SA retailers are finding it difficult to deal with inflation, competition and credit restrictions, writes Stafford Thomas
Tough economic times are guaranteed to show up how robust corporate strategies are. And nowhere is this truer than in the retail sector, where a battle royal is raging to capture dwindling consumer spending power.
The struggle is especially fierce in the clothing retail segment, where characteristics of a permanent structural change are increasingly evident.
Not the least of the factors underlying this change is a rapid decline in the use of credit to drive sales.
The decline was triggered by credit retailers who responded to rising bad debts by tightening lending criteria. Government also stepped in, entrenching the decline in credit extension growth when, in September 2015, it introduced affordability regulations enforcing strict lending criteria.
“They [the new credit regulations] have cost the clothing retail industry billions in lost sales,” says Anthony Thunstrom, chief financial officer of The Foschini Group (TFG).
With credit hard to come by, retailers who have been traditionally heavily dependent on credit to drive sales have lost their grip on some customers. The reaction of many of those customers is to take what cash they have and spend it where they get the best deal.
Consumers are also no longer satisfied with seasonend sales. They want discount prices every day. In the UK this has led to cut-throat competition, which has brought about steep deflation in clothing prices over the past four years. Clothing prices slumped 6% in 2015 and a further 7% in the 12 months to November 2016.
Whether SA will see anything as brutal remains to be seen. But aggressive discount- ing during the 2016 festive season suggests the pressure is on.
Evan Walker of 36One Asset Management says: “In the runup to Christmas, Woolworths had a huge [clothing] promotions drive. Prices were slashed by 30%-40%.”
What sales would have looked like without discounting is a matter of conjecture. But even with discounting, Woolworths reports (in a trading update for the 26 weeks to December 25) that SA clothing sales volume was down 3.8% year on year after adjusting for 7.3% internal inflation. On a like-for-like (same store) basis, sales volume fell 6.1%.
SA’s clothing retailers have, in recent years, also found themselves confronting a new competitive dynamic: foreign retailers. The two most serious competitors to emerge are Australian group Cotton On and Swedish giant H&M.
Cotton On came to SA in
The rapid change in the clothing retail landscape has caught some local players off balance
Woolworths … huge promotions drive before Christmas