Retail tills jingling all the way

These bullish projections are supported by low inflation and interest rates, robust consumer income and overall economic growth, the roll-out of social grants (e.g. the child support grant), improving employment levels and high consumer confidence. Retail sales have been booming since Christmas 2003.

According to Statistics South Africa, volumes increased by an impressive 10% during 2004 and by a further 6% during the first eight months of 2005. Official stats for retail sales in the fourth quarter of 2005 are not yet available, but the latest retail survey results are upbeat.

Analysis of the results shows that festive season growth remains strong in the categories of food, beverages, groceries and durable goods, such as furniture, household appliances and electronic equipment.

According to Susan du Toit, the Ernst & Young partner for retail and consumer products: "Lively sales of food, beverages and groceries can probably be ascribed to relatively subdued price increases in these categories, employment growth, high wage settlements compared to inflation, and increases in social grants, which raise disposable income. Sales of durable goods, in turn, have been benefiting from the strong exchange rate and low interest rates."

The decline in the prime overdraft rate over the last three years has lowered debt-servicing costs, while the strengthening rand has enabled retailers in goods with high import content, e.g. electronic goods, to attract customers by lowering their selling prices. However, growth in sales of clothing and footwear eased from the phenomenal pace of the last three years.

The fourth quarter survey results for 2005 also suggest that although inflation has started to pick up, inflationary pressures in the economy remain subdued. "This is good news for indebted consumers, as it means that the South African Reserve Bank will probably decide against hiking interest rates at their December monetary policy committee meeting," du Toit observed.

Despite increased sales volumes - in line with third-quarter expectations - and high overall sector profitability, retailer confidence edged three index points lower; however, with 82 percent of respondents rating prevailing business conditions as 'satisfactory', retailer confidence can still be regarded as 'very high'. Business confidence is calculated as the gross percentage of respondents rating prevailing business conditions as satisfactory.

"The marginal decline in retailer confidence is probably related to retailers' expectations of a moderation in sales growth during the first quarter of 2006. Given that inflation and interest rates are not expected to decline further, and the state's roll-out of child support grants (which provided an enormous financial boost to many low-income households) is almost completed, retail sales growth is expected to slow to a more sustainable tempo in 2006," commented du Toit.

"However, further employment growth and income tax cuts, as well as the unrelenting rise of the black middle class, should underpin consumer spending," du Toit said. "As a result, the BER expects retail sales volumes to increase by 4% in 2006."