Long way to go for the retail sector, especially…


The nature of household spending has undergone a profound change due to the unprecedented disruption caused by the pandemic. While some sectors and businesses have indeed benefited from the acceleration of the digital revolution, the prolonged and heightened uncertainty has been a thorn in the flesh of most retailers.

The South African economy has been very fortunate to have been buffered by a commodity price cycle that has benefited the resource sectors, while generally favorable weather conditions and a highly competitive farming community have also ensured a solid growth in the agricultural sector.

Unfortunately, however, retail – which is one of the pillars of the national economy – continues to underperform compared to the pre-Covid period. In the first 11 months of 2021, total retail sales were just over R1 trillion, 3.2% higher than the January to November 2020 figure, but still 4.7 % less than during the corresponding period in 2019 (in real terms). terms).

Even more concerning is the fact that 2021 retail sales through November are still lagging the 2017 inflation-adjusted record for January through November of 5.7%.

Covid — new waves and variants

The reasons for the sluggish recovery in retail sales are not hard to find. The past year has been characterized by repeated waves and new variants of the Covid virus, resulting in the regular imposition of lockdown restrictions, both nationally and internationally.

This has led to the most pronounced change in the pattern of household consumption expenditure in modern history, with South African households spending considerably less than in the past on furniture and appliances, alcoholic beverages, clothing and restaurants and hotels.

On the other side of the equation, households have increased their spending on food, communication, education, housing and utilities, but it is the costliest expenses that have suffered the most during the pandemic. .

Retail also received an unforeseen blow in July, when unrest broke out in parts of KwaZulu-Natal and Gauteng, which left its mark on consumer and business confidence over the following months.

Moreover, it is nearly impossible for retail sales to thrive in an environment where unemployment has reached historically high levels. An additional constraint facing the retail sector has been the shortage of goods due to universal supply chain disruptions, particularly in China and other Asian countries.

TechRadar reported that in the United States, Apple products and Amazon devices sold out ahead of Black Friday and Cyber ​​​​Monday, although these two days of extravagant retail activities gave sales a boost. November a welcome boost. In South Africa, the precursor month to the traditional trade windfall of December brought in R112 billion, 16% more than in October, but only 2% more, in real terms, than in November 2020.

Scarcity of online shoppers

South Africa is not the only country where lockdowns have taken a heavy toll on retailers, but the domestic retail sector is woefully short in the crucial area of ​​online shopping. China is the top country in the world in terms of retail e-commerce sales share (44%), with the UK in second place at 28%.

Trade statements released in January by major JSE-listed retailers provided e-commerce updates confirming a lack of penetration in this growing and increasingly essential part of the global retail framework. Retail groups Woolworths, Truworths, Foschini and Mr Price recorded online sales ranging from just 2% to 5% of total sales in their last interim reporting periods.

From a longer-term perspective, there is no doubt about the negative impact that state capture and public sector corruption and incompetence have had on investor and consumer confidence. Although private sector capital formation is showing signs of significant recovery, it needs to be complemented by improving and expanding the country’s infrastructure to gain further momentum.

In the meantime, it would be unwise for the Reserve Bank to inflict more pain on consumers via an interest rate hike, when everyone knows that the recent rise in inflation is mainly due to a 40% increase over a year of fuel prices. Higher domestic interest rates will not encourage OPEC to increase oil production. BM/DM


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