RETAILING: Retailers In A Fix
Recent Western Cape Business News
Stellenbosch's BER reports that during the second quarter of 2010, retailer confidence decreased by 13 index points to reach a level of 38, thereby wiping out nearly all the gains made during the previous two quarters. Overall business conditions, sales volumes and profitability performed worse than expected. The survey does suggest that the retail sector is recovering; however, the recovery will probably be more sluggish than initially anticipated.
According to BER economist Craig Lemboe, “the survey indicates that the growth in the volume of sales remained sluggish”. According to the respondents, sales volumes increased at about the same rate in the second quarter compared to the first quarter. However, respondents are quite optimistic about the third quarter and expect sales volumes to grow substantially faster.
During 2010Q2, retailers cut back average selling prices in part to stimulate sales volumes. Purchase prices, in contrast, increase at the same pace as previously.
“The combination of lower sales volumes, higher purchasing prices and lower selling prices has put severe pressure on profit margins during the second quarter” Lemboe said. A net 48% of respondents indicated that overall profitability was lower in 2010Q2 compared to the same period last year. This is also marginally worse than in 2010Q1.
Also in the second quarter of 2010, business confidence amongst wholesale traders declined to 47 from 50 in 2010Q1. There are disparities amongst the two sub-sectors of wholesale trade. Non-consumer goods (machinery and equipment, building materials and petroleum products) wholesaler confidence increased from 48 to 52 during 2010Q2, whereas consumer goods (food, beverages and clothing) business confidence fell from 51 to 41.
“Despite the lower business confidence, Wholesale traders remain positive regarding their forecast for 2010Q3.” Lemboe said. A net 4% of respondents expect growth in sales volumes to return to positive territory next quarter.
During the second quarter of 2010, business confidence amongst new vehicle traders eased to 49 from 60 in 2010Q1. However, it must be noted that the 2010Q1 increase in business confidence (from 29 in 2009Q4 to 60 in 2010Q1) was the single biggest change in the index since 2003Q2. According to Lemboe, “the lower level of business confidence could merely be a correction to more reasonable levels. Expectations that the soaring growth will not continue during the third quarter may also have played a role.”
The fieldwork for the survey was conducted from 3 - 31 May, amongst the BER’s regular panel of respondents
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