South African consumers hit the brakes on retail expenditure

Retail sales fell for a fourth consecutive quarter in South Africa, signifying the effects of an increasingly difficult economic climate. This is becoming more apparent as household belts are getting uncomfortably tight with scaled-back spending. This was revealed in the latest Stats SA retail sales data. 

Over the past year, consumers put the brakes on retailer expenditure. Stats SA’s retail trade sales data show retailers saw 1.6% less in their tills – which is more than Bloomberg economists had predicted at -0.7% – and pulled back sharply on expenditure at specialist stores, which have seen a 6.6% decline in spending at food, beverages and tobacco. They are also spending less on pharmaceuticals, which are down 3%.

General dealers were down 1.9% but retailers of textiles, clothing, footwear and leather goods were up 6.3%.

Seasonally adjusted, retail trade sales decreased by 0.7% in March 2023 compared with February 2023.

A year-by-year comparison shows that in Q1 of 2023, retail trade sales were down by 1% compared with Q1 of 2022, largely dragged down by retailers in hardware, paint and glass (-5.7%); general dealers (-1%); pharmaceuticals (-3%); and retailers in food, beverages and tobacco in specialised stores (-4.8%). 

Seasonally adjusted retail trade sales increased by 0.8% in Q1 of 2023 compared with Q4 of 2022, mainly driven by a 4.4% increase in textiles, clothing, footwear and leather goods.

On a monthly basis, retail sales were down 0.7% in March compared with February.

In a commentary on the data, Investec economist Lara Hodes noted that the general dealers’ category (which makes up over 40% of the retail basket) had slid by a further -1.9% year on year in March (-1.5% y/y previously).

Hodes said the retail environment in South Africa remained trying, as backed by the Absa Bureau for Economic Research, whose trade survey for Q1 of 2023 showed retail confidence had dropped to 34% from 42%, in Q1 of 2023 – the weakest reading recorded since Q2 of 2020. 

“The electricity supply predicament continues to weigh heavily on costs, reducing profitability. Consumer sentiment remains lacklustre as the spiralling cost of living erodes disposable incomes,” she said, adding that BankservAfrica data also showed that real take-home pay had fallen by -4.8% y/y in March. 

“The indebted are also having to contend with rising interest rates, with a further hike expected next week.”

John Loos, property sector strategist at FNB Commercial Property Finance, said real retail sales have battled to fully recover to pre-Covid levels, which is a reflection of a tough economic period, even after the hard lockdown period.

A key cause of the weak real retail sales has been the sharp surge in retail price inflation – from 3.8% year on year in March 2022 to 8.5% in March 2023 – which reveals the state of the economy: growth has slowed down due to rising inflation and interest rates, the global economic slowdown affecting South Africa through its trade with the world, and heightened rolling blackouts.

“While interest rate hikes have contributed to a slower economy, which slows total household income growth, they also contribute directly to a purchasing power constraint, because the increased cost of servicing debt means less disposable income available for cash purchase of consumer goods and services,” he said. DM