Retail sector confidence at 7-year high despite unrest and lockdown restrictions | Fin24

Retailers of food and beverages and other non-durable goods, as well as hardware recorded a boost in confidence and sales volumes, according to a survey.

• Despite looting and unrest in July, sentiment in the retail sector for the third quarter reached a seven-year high, according to the Bureau for Economic Research. 
• The increasing confidence levels however was not broad-based, this with sentiment of retailers of semi-durable and durable goods taking a knock.
• Retailers have faced a tough operating environment, with some indicating cash-flow problems and reduced earnings.

Confidence levels in the retail sector reached a seven-year high for the third quarter, despite the looting and unrest in July as well as tighter lockdown restrictions, a survey has found.

The Bureau for Economic Research (BER) on Monday released its retailer confidence index. It climbed two index points to 56 points, up from 54 points recorded in the second quarter. Sentiment is above the long-term average of 39 points. The survey was conducted between 11 and 30 August.

However, according to the BER, the rise in confidence levels was not broad-based. Retailers of semi-durable goods and durable goods indicated a knock in sentiment.

Retail confidence levels for semi-durable and durale goods took a knock.

Supplied BER

The BER noted that retailers experienced a tough operating environment – due to sales losses caused by unrest and looting, tighter lockdown restrictions also limited movement of consumers, global supply chain bottlenecks leading to stock shortages and higher input costs. July retail sales particularly reflected the largest monthly drop since the hard lockdown in April 2020. Retail sales fell 11.2% from June and contracted 0.8% on a year-on-year basis.

This was weaker than economists expected, and was largely attributed to the unrest and lockdown restrictions. In a separate economic note, the BER said that although there might be improved internal trade activity in August and September, the magnitude of the July declines could see the overall performance of the trade sector detract from GDP for the third quarter.

According to the BER, several retailers have also indicated cash flow problems and reduced earnings – amid South Africa’s weak labour market. The country has 7.8 million jobless, according to Stats SA.

“Discretionary spending remains constrained among low- and middle-income earners in particular,” the report read.

Overall, third-quarter retail sales volumes is expected to have declined – mainly dragged down by reduced in sales of clothing and furniture. The decline was expected due to stringent lockdown measures in place, compared to the previous year.

“In addition, the sales volumes of retailers in clothing and footwear and furniture, electronics and household appliances in particular were knocked by the violent protests and rampant looting that tore through KwaZulu-Natal and Gauteng during July, with certain stores still remaining closed and unable to trade,” the report read.

Food and hardware retailers however sustained their growth in sales volumes during the third quarter.

The reinstatement of the R350 social relief of distress grant – estimated to have supported between eight and nine million beneficiaries during August – is expected to have boosted sentiment and sales of food and other non-durable goods retailers, the report read. Although, the third wave of Covid-19 infections and associated lockdown restrictions would have diverted spend from services such as restaurants, theatres and sporting events, to groceries and essential items, according to the BER.

The uptick in hardware sales is probably linked to the continued demand for home improvement – and the continuation of working from home, the BER indicated.

“Hardware retailers have also noted higher sales volumes due to increased demand for damage repairs as a result of the violent civil unrest. It would also seem that high-income earners with savings to spend, and others with increased appetite for credit, continue to benefit retailers of durable goods,” the report read.

As for fourth quarter expectations, overall views are pessimistic about business conditions and sales volumes, the BER highlighted.

“The effects of the civil unrest [which could linger for about 18 months], a weak labour market, the ongoing Covid-19 pandemic and global supply chain disruptions remain causes of uncertainty for the sector.”

There is, however, optimism from the reintroduction of the social relief of distress grant as well as an anticipated public sector wage agreement that could bolster household income by R40 billion over the next six months – which will benefit retailers.