Retail should benefit from modest but positive gains in 2013

With core economic fundamentals holding steady in SA, and global economies showing the first signs of recovery, key retail indicators are set to show modest, but positive, gains in 2013.

This compares favourably with a year ago, when the retail sector was bracing for a slow-growth year.

“Our forecast for 2013 is that while gains will remain modest, retail indicators are in general remaining in positive territory,” says SA Council of Shopping Centres (SACSC) CEO Amanda Stops, referring to the Economic Overview – January 2013, prepared by respected economist Christo Luus.

“And we see this being underpinned by better core fundamentals in other key economic metrics.”

Total retail sales were significantly higher towards the end of 2012, with November data showing a 3.4% increase year-on-year. Over the period from January to November, retail sales in 2012 tracked upwards by 4.6 percent compared with the same period in 2011.

Retail sales growth is forecast to see gradual improvement in 2013, reaching approximately 4.5% in early 2014.

Improving economic fundamentals are underpinning these gains.

Overall, SA’s economic growth is expected to gradually rise from 2.4 percent in 2012, to 2.8 percent in 2013, reaching 3.4 percent in 2014. This is in line with the slow but steady improvement in both the US and European economies, which should see global economic growth hold firm in 2013.

SA’s retail sector should note that low interest rates, steady inflation levels and positive growth in real household income are positive signs for the next 12 months.

“The prevailing low interest rate environment – the lowest since 1970 – is likely to continue throughout 2013, with no additional rate hikes,” explains Stops.

Linked to that is an inflation rate that remained consistent in 2012 and will likely remain the same in 2013 – although food inflation in particular is expected to accelerate going forward, as the SACSC report notes.

Real household disposable income growth recovered strongly in 2010 and 2011 before slowing slightly in 2012 to 3.5 percent. The SACSC forecasts a positive growth of 3 percent for 2013.

At the same time, formal sector employment is anticipated to rise slightly to 1.2 percent in 2013, something that should help boost disposable income along with real wage increases.

Stops notes that there are challenges for the retail sector this year.

The forecast decline of durable goods expenditure growth in 2013 is a red flag for the sector, as is the expected slowdown in semi-durable goods in 2013.

“And while households are likely to have more money to spend in 2013, it’s not expected to be much more than last year,” adds Stops.

“That’s something retailers will have to monitor.”

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