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Retailers are feeling economic crunch

Mid-year is traditionally slow for retailers but this June, which saw total sales rung up by South Africa's tills fall to R39.7 billion from over R40bn in May, was worse than economists expected.
Though inflation boosted total sales by 11.5% from June last year, higher home and car repayments saw consumers actually spend 2.6% less than a year ago after inflation has been taken into account. June's decline follows May's 3.4% drop in real retail sales.

Johan Botha, an economist at Standard Bank, said the 2.6% drop was twice as bad as he expected.

June marked the fourth month that inflation adjusted retail sales have fallen, setting the scene for a consumer recession which should dissuade the Reserve Bank's seven member Monetary Policy Committee from voting for another interest rate increase on Thursday.

Citigroup economist Jean-Francois Mercier said: “On balance, further evidence of subdued consumer demand in the second quarter is an additional argument for the central bank to leave rates on hold, as we and a majority of market economists expect.”

In East London, a mall manager confirmed that inflation, rising fuel prices and interest rate hikes have caused the first drop in sales growth in five years.

Vincent Park centre manager Joseph Parsley said during the first quarter of this year the centre experienced sales growth of 12% , but by the second quarter this figure had fallen to 10.5% growth.

“We are encouraged that the growth is still positive, but people are definitely more cautious with their discretionary spend.”

Parsley expected the retail downturn to continue for another 18 months before a turnaround.

“The economy grows in cycles and the last five years have been good. We are now in the downside (of the cycle). We will be looking at (today's) interest rate decision, hoping for it to remain the same. Another interest rate hike will be devastating.”

Hardware stores see sales slump over the December builders' holidays, unlike other retailers which enjoy a Christmas sales spike. Stats SA's June retail data found hardware stores enjoyed the best growth over the year, home owners fixing rather than buying. Hardware sales rose 16.4% to over R3bn.

Delicatessens, on the other hand, reported the lowest growth among retailers at under 3%year-on-year. With food inflation averaging 17% over the year, this implies far fewer South Africans can now afford to buy what Statistics South Africa calls “specialised food”.

Midwinter saw clothes shops suffer an 8% month-on-month slump, taking their total sales down to R7.2bn but between-season sales were still nearly 16% up on last year.

Furniture and appliance dealers sales at R2.1bn are only 7.6% up year-on-year, but this translates into real growth as sofas and TVs have become cheaper over the year.

Source: Daily Dispatch

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