Retailers get creative to lure consumers

RETAILERS are poised to fight harder to get customers into their stores this festive season than any other year, as this has been one of the toughest years for consumers who battled rising inflation, interest rate increase, limited credit access as well as high unemployment.

From the start of the second half of the year, big food retailers, including Shoprite, Pick n Pay, Spar, Woolworths and Massmart – Makro’s parent company – have been involved in heavy promotions to drive store traffic.

But with Christmas a few weeks away, there is little evidence to suggest that the promotions will mean increased profitability. The pending reduction in the petrol price in the coming week might give consumers spare cash, but analysts do not expect the windfall to make a real difference in the spending patterns.

That Shoprite’s Checkers division would go so far as to punt “Black Friday” specials this past week, goes to show that retailers are leaving nothing to chance. Black Friday is a play on the biggest shopping day of the year in the US, following the Thanksgiving holiday, on the last Thursday in November.

It is a first for South Africa that retailers in a country with no tradition of celebrating Thanksgiving will take a leaf out of the biggest consumer market in the world to promote “Black Friday”.

Online shoppers were also treated to a Kalahari.com “Black Friday” sale this week.

Retail analyst at Absa Investment Chris Gilmour said although “Black Friday” was an American concept where retailers generate the bulk of their annual profits, after being in the red for most of the year, was also relevant for local retailers. “Local food retailers, like all in the world have relatively small margins which comes between 2 to 5 percent.”

He said in the few weeks leading up to Christmas, clothing retailers had at least 40 percent of merchandise on special. “It is critically important that you get the festive season right.”

The only way retailers are going to do well … is to take market share from other people

Gilmour said the Black Friday in South Africa was being promoted by retailers to get consumers ready for holiday spending. He was, however, quick to say, “the festive season looks deadly. I do not think its going to be a great festive season. I do not see how…”

Instead, Gilmour predicted that the retail arena was about to get more competitive and this would include heavy marketing and discounting, which could weigh on the bottom line.

“The only way retailers are going to do well in this environment is to take market share from other people. This will involve aggressive marketing and discounting, and making sure that people come into your store,” he said.

In a research note last week Annabel Bishop, the chief economist at Investec, said consumer spending this festive season was likely to be weaker than in prior years, and in the new year the retail sector was particularly likely to feel a slowdown in spending growth.

Bishop said at least 57.8 percent of consumers were delinquent in debt repayments. “The festive season binge will leave already indebted households particularly constrained in the new year.”

Last quarter, the MDB Credit Solutions/Bureau of Market Research Consumer Financial Vulnerability index measured 51.3 points, signalling that consumers continued to be exposed in terms of financial vulnerability. The survey also showed that debt servicing was a big challenge for consumers.

Consumers face higher interest rates, higher debt repayments. Real disposable income growth is falling and employment prospects in the private sector are weak, Bishop added.

Derek Engelbrecht, a retail and consumer products sector leader at Ernst &Young, said last week that retailers’ growth in turnover would be driven by price increase and not volume growth as consumers’ financial strain persists.

“Volume growth remained modest in the fourth quarter of this year, but retail prices have been increasing at a much faster pace during the year compared to the 2013 festive season,” Engelbrecht said, adding that moderating inflation was providing a silver lining.