Western Cape Business News

Send  Share  RSS  Twitter  17 Mar 2011

RETAILING: Strong Improvement In Retail Sector


Recent Western Cape Business News

Results from the latest Stellenbosch Bureau for Economic Research (BER) Retail Survey reveal a notable improvement in business conditions in the retail sector during the first quarter of 2011. Whereas a net majority of 2% of the respondents to the BER’s Retail Survey reported that business conditions had still deteriorated in the retail sector during the fourth quarter of 2010, 10% net reported an improvement in business conditions during the first quarter of 2011. This is the first positive rating (i.e. improvement) for the BER’s “change in business conditions” index since the third quarter of 2007. The rebound in business conditions can probably be ascribed to significantly higher increases in selling prices in the trade sector during 2011Q1, coupled with solid growth in retail sales volumes. With 43% net of retailers expecting a further improvement in business conditions during 2011Q2, retailers are very optimistic about the outlook for the second quarter.

While business conditions appear to be improving, the percentage of retailers reporting that they are satisfied with prevailing business conditions (i.e. business confidence) declined slightly (from a three year high of 63 to 58) during 2011Q1. According to economist Linette Ellis, this contraction can largely be ascribed to a sharp drop in the business confidence levels of retailers in semi-durable goods, which was in turn brought about by weaker than expected textiles, clothing and footwear sales growth during 2011Q1. The confidence levels of retailers in hardware also deteriorated, but furniture retailers and retailers in non-durable goods (e.g. food, beverages, pharmaceuticals and cosmetics) remained very optimistic.

Another striking feature of the BER’s latest retail survey results is the fact that retail selling prices increased significantly during the first quarter, suggesting that inflation is accelerating. While the price increases were broad based, retailers in the non-durable goods trade in particular reported a substantial uptick in selling prices, hinting that food prices may rebound more strongly than many forecasters anticipated. “The vast majority of retailers also reported increases in their purchase prices, suggesting that their selling price increases to a large extent reflect cost push factors such as higher commodity prices, soaring electricity and petrol prices and rising wages,” said Ellis.

Ellis said that, following a bumper festive season, and robust growth during 2010 in general, it appears as though the growth in retail sales volumes tapered off slightly during 2011Q1. During 2010, factors such as exceptionally high real wage increases, low interest rates, a strong rand (and hence low import prices), pent-up demand and high consumer confidence saw a better than expected bounce back in retail sales volumes. “Given our projection of lower real wage increases, increasing food and fuel prices and no further interest rate cuts, as well as due to base effects, we expect the growth in retail sales volumes to ease somewhat during 2011,” said Ellis. However, if retailers are able to increase their selling prices more meaningfully without impeding volume growth, turnover growth may accelerate significantly during 2011.

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