SA’s waning retail trade sales point to property market under heightened pressure

A sixth consecutive monthly decline in retail sales figures signals bad times for the retail property market.

In a commentary on Stats SA’s latest retail trade sales data, FNB economist John Loos said that while signs of weakening have already been seen earlier this year, the full impact of interest rate hikes and economic slowdown is yet to be felt. 

Stats SA released the latest data for the retail trade last week, showing a 1.4% year-on-year decline in May 2023, with the biggest contributors being general dealers (the largest portion of the retail index, down 3.7%), and retailers in hardware, paint and glass (down 8.7%).

Seasonally adjusted retail trade sales declined by 0.7% in March, 0.2% in April and 0.7% in May. 

In the three months ended May 2023, retail trade sales were down by 1.5% compared with the three months ended May 2022. The largest contributors to this decrease were once again, general dealers (down by 2.7%) and retailers in food, beverages and tobacco in specialised stores (down 5.5%).

Textile, clothing, footwear and leather goods retailers were the sole positive contributors to the sales data, growing by 6%, which Loos ascribed to this segment experiencing low price inflation of 3% on its products.

In her response to the latest stats, Investec economist Lara Hodes pointed to the BER’s quarterly retail trade survey, which showed that the robust performance of the semi-durable, clothing and footwear segment relative to other goods in the retail basket could be explained by several factors, including, “a divergence in inflation trends” and the pick-up in demand as people return to the office and resume travel and recreational activities. 

“Finally, the Social Relief of Distress grant introduced in 2020 may specifically have boosted sales of low-priced apparel.” 

And yet, despite the 6% lift in the textiles, clothing, footwear and leather goods segment, overall retailer sentiment remains highly subdued, with confidence dropping 14 points to 20 in Q2.

Electricity supply, or the lack of it, is weighing heavily on costs and reducing profitability, with consumers coming under increased pressure, she said, citing BankservAfrica data which revealed that real take-home pay fell by -8.8% year on year in May – “the lowest level on record”.

The renewed real sales decline, after the post-lockdown rebound in 2021 and part of 2022 as economic life normalised, demonstrates the emergence of severe economic headwinds, said Loos. 

And with retail sales down, the retail property sector is coming under heightened pressure. 

“The real retail sales weakening keeps the pressure on for retail shopping centres, likely sustaining the slowdown in growth in retail centre trading densities, as already seen in MSCI [index, which measures the performance of the large and mid-cap segments of the market] first-quarter 2023 numbers.”

All five main shopping centre categories – Super Regional, Regional, Small Regional, Community and Neighbourhood – showed slowing trading density growth in Q1 2023, and declining sales in Q2 are adding to fears of further slowing.

Citing TPN tenant data, retail tenants in good standing with landlords in Q1 was at 73.4% but it’s expected that tenant payment performance will deteriorate further into H2 of 2023. 

This is likely to lead to a further increase in retail centre vacancy rates, with four in five main retail centre size categories having shown quarterly rises in vacancy rates in Q1. 

Declining sales are not the only factor: the sector is contending with above-inflation municipal rates and tariff hikes while being forced to seek out alternative – read expensive – power supplies. DM