RETAIL STOCK Tighter belts are in

Analysts warn of a tough year ahead, but encourage fashion retailers to look offshore

A retailers will have to continue battling it out on price for most of this year as consumers remain under pressure from high debt levels and lower disposable income.

The decline in oil prices is expected to boost consumer confidence, but analysts caution that growth in employment and wages will remain subdued.

Furthermore, the scheduled electricity load shedding is expected to have a negative effect on sales as it will disrupt business activities.

“The economic environment is tough,” says Abri du Plessis, portfolio manager at Gryphon Asset Management. Looking at the trading updates coming from listed retail groups, Du Plessis says the past festive season was tepid, and the trend is likely to continue throughout this year. “Peo- ple are spending on food rather than on durable goods. Cash retailers are doing better than credit retailers.”

The trading updates show that competition remains intense across the fashion, food and general merchandise segments, but has been in line with analysts’ expectations.

“There were positive surprises from The Foschini Group (TFG), Massmart and Mr Price, but it is not clear whether this is because stores were closed for one day in the 2013 comparable period for Nelson Mandela’s funeral, or whether it is due to a genuine improvement in sales trend,” says Simon Anderssen, investment analyst at Kagiso Asset Management.

TFG, which has just announced the acquisition of UK clothing chain Phase Eight for R4,3bn, says group sales for December (November 30 to December 27) were 12,5% up from last year, and same-store growth rose 7,3%. For the nine months to December 27, group sales increased by 10,5% and same-store sales by 5,1%. Samestore figures — sales made by Woolworths Food sales grow by 14% stores that have been open for more than one year — are taken into account to determine what growth is attributable to new store openings.

Durban-based Mr Price recorded retail sales growth of 14,2% in the third quarter to December 27 compared with the previous corresponding period. Comparable store sales grew by 9,6%. The group’s selling price inflation was 6,8% over the period. Aided by a net 27 new stores, cash sales growth of 15,3% continued to exceed that of credit (9,6%), and now constitutes 81,9% of total sales.

Walmart-owned Massmart reported a total sales increase of 10,4% to R78,2bn over the 52