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Send  Share  RSS  Twitter  16 Sep 2009

RETAILING: Retailer Confidence Slumps Further


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Stellenbosch - Results from the latest Bureau for Economic Research (BER) Retail Survey reveal that retailer confidence declined sharply during the third quarter of 2009, falling from 47 to an eight-year low of 35 index points.1 The downward adjustment in retailer sentiment comes after retailer confidence remained resilient around the 50 mark for six consecutive quarters, with the recorded readings only varying between 47 and 53 since the first quarter of 2008. The BER’s retailer confidence index depicts the percentage of respondents reporting that they are satisfied with prevailing business conditions.

The deterioration in retailer confidence during the third quarter can largely be ascribed to intensifying pressure on overall profitability. According to BER economist Linette Ellis, it appears as though price increases in the retail sector slowed notably during 2009Q3, which translated into lower profitability. The downward pressure on selling prices was particularly severe in the non-durable goods (e.g. food, beverages and pharmaceuticals) sector, but also evident among semi-durable goods (e.g. clothing and footwear) and durable goods (eg. furniture and household appliances) retailers. This is good news for consumers and should bolster sales volumes, but pressure on selling prices (and profitability) may continue to weigh on retailer confidence during the fourth quarter of 2009.

Although overall profitability in the retail sector appears to be under strain, there seems to be some light at the end of the tunnel in terms of sales volumes. According to Statistics South Africa, retail sales volumes contracted by 6.0% year on year during 2009Q2, down from a 2.7% y.o.y. contraction during 2009Q1. The exceptionally weak second quarter reading from Statistics SA corresponded with the poor reading for the BER’s retail sales volumes index, which reached a new record low during the second quarter of 2009. However, during the third quarter of 2009, a significantly smaller percentage of the retailers surveyed by the BER indicated that sales volumes were lower compared to the same quarter of 2008, suggesting that sales growth may have bottomed during 2009Q2.

Semi-durable goods retailers noted the largest improvement in sales volumes, followed by durable goods retailers. Non-durable goods retailers indicated that sales volumes contracted at roughly the same pace compared to the second quarter of 2009. Although the retail sector is not yet out of the woods, there are other indicators that also suggest that the worst (in terms of volume growth) may be behind us. For example, retailers made a significant upward revision to their expectations regarding sales volumes, with the majority of the BER’s respondents expecting sales to improve during the fourth quarter. According to Ellis, this is the first time in almost two years that the majority of retailers expect sales volumes to perk up in the next quarter. Furthermore, retailers' rating of present stock in relation to expected demand declined to the lowest level in 18 months. Factors that probably contributed to this more favourable outlook for sales volumes may include smaller price increases, the lagged impact of the cumulative 500 basis point cut in the prime interest rate and a reported easing in lending criteria by certain South African banks.

Ellis said that, while we may see a slow uptick in retail sales volumes during the fourth quarter, retail turnover will probably deteriorate further. "Non-durable goods retailers will be particularly vulnerable, with food prices now easing rapidly, while sales volumes could remain under pressure from job losses,” said Ellis. The non-durable goods sector is also the sector that will receive the smallest boost from the cumulative 500 basis point cut in the interest rate. Ellis concluded that “Although the BER’s survey results suggest that retail sales volumes may start to edge higher during the fourth quarter, there are still some trying times ahead for retailers.”

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