Western Cape Business News

Send  Share  RSS  Twitter  19 Mar 2009

RETAILING: The Ups And Downs Of Retailing


Recent Western Cape Business News

The Stellenbosch-based BER reports that during the first quarter of 2009 (09Q1) total sales volumes contracted at a higher rate relative to the fourth quarter of 2008 (08Q4). The higher rates of shrinkage in the volume of sales of semi-durable and durable goods overshadowed the modest recovery in the volume of sales of non-durable goods.

The 08Q4 rebound in the volume of sales of semi-durable goods (i.e. mainly clothing and footwear) turned out to be a flash in the pan. During 09Q1 sales volumes contracted sharply once more. Although respondents did not expect the stellar performance of 08Q4 to continue during 09Q1, the magnitude of the deterioration must have caught them off guard.

After having fallen during 08Q4, the sales volume of non-durable goods (i.e. mainly food, beverages and pharmaceuticals) rebounded unexpectedly during 09Q1. Despite a turn for the better during 09Q1, the growth in sales volumes remained weak compared to the heydays of 2005-7.

The higher sales volumes of 09Q1 could partly be attributed to the substantially lower price increases. Last year many households were forced to increase their monthly budgets for food and other groceries due to high price increases. Now with lower food prices (e.g. cooking oil and rice), these same households could buy larger volumes with the same budget.

Households may also have shifted their spending from high-priced ready meals to low-priced basic items and staples. Other factors that contributed to the more lively sales of non-durable goods in-clude the lower petrol price, the shift in spending from durable goods and the national budget announced on 11 February 2009. The budget included a number of measures to in-crease the disposable income of households directly, such as the additional R13bn set aside for social grants and the R4.1bn for the expanded public works programme. The bulk of these funds is probably spent on non-durable goods. Furthermore the personal income tax scales were adjusted to fully compensate for inflation. Without this adjustment, households would have paid R13.6bn more tax during the fiscal year 2009.

After already contracting sharply during 08Q4, the volume of sales of durable goods (i.e. fur-niture, appliances, household electronic equipment, hardware and building material) plum-meted further during 09Q1.

The falling sales volumes could be attributed to:

a high household debt service burden, which has brought the ability of households to incur more debt to buy durable goods and invest in residential buildings largely to an end,

increased difficulty in obtaining credit following the introduction of the new national credit act (NCA), rising bad debt and falling house prices,

a stock effect, and

the fact that consumers rate the present as an inappropriate time to buy durable goods (indicated by the relevant sub-index of the FNB/BER CCI during 08Q4).

The fall in sales of furniture and appliances links closely to the plummeting residential building activity.

Respondents foresee the volume of total sales to contract at a slightly lower pace during 09Q2.

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