Retailer confidence declined marginally from 56 to 52 in Q4 of 2021 but, overall sentiment is still significantly higher than pre-pandemic levels, remaining well above the historic average of 39 index points.
According to the Bureau for Economic Research’s (BER) Retail Survey Results Q4 2021, confidence was largely impacted by non-durable goods retailers i.e., food and beverages, on the back of a deterioration in business conditions, weaker sales volumes, a decline in pricing power, and by implication, lower profitability.
Meanwhile, hardware retailers remain optimistic with improved sales volumes and better trading conditions.
After falling further into negative territory in Q3 due to the third wave Covid-19 infections and the civil unrest, overall business confidence improved in Q4, mainly due to the absence of stringent lockdown restrictions and increased traffic footfall at malls and shopping centres. The reinstatement of the Social Relief of Distress (SRD) grant and cash bonusses afforded to government employees assisted in boosting the purchasing power of consumers heading into Q4.
However, the lingering impact of the civil unrest, supply chain disruptions, rising input costs, and continuous bouts of load-shedding continued to weigh on retailers.
According to data by StatsSA, real retail trade sales rose 2.1% year-on-year in September, exceeding expectations for a 0.7% year-on-year increase. Most of this improvement was driven by a higher demand for textiles, clothing, footwear, and leather goods, which surged by 11.3% year-on-year and contributed 1.6% points to annual growth. On a monthly basis, retail sales increased by 5.1%.
Unfortunately, this did not come close to undoing July’s upwardly revised 11.2% month-on-month fall and despite September’s performance, seasonally adjusted retail sales were down by 5.4% in Q3 when compared to Q2 2021.
The latest BER Retail Survey suggests that retail volumes picked up in Q4 2021, but this performance was not broadly based. Sales of clothing and footwear, furniture, electronics, and household appliances edged up while sales of food and beverages subsided, knocked by the reopening of the services sector i.e., restaurants, pubs, hotels, and theatres.
During Q3, the trading capacity of restaurants were constrained due to pandemic-related restrictions which led to spending shifting away from services and other discretionary categories to essential products, which greatly benefitted non-durable goods retail. However, with the third wave behind us, consumers can divert spending away from non-durable goods to the hospitality sector. Semi-durable and durable goods retailers expect to profit from Black Friday sales and the festive season shopping period.
Semi-durable and durable goods retailers expect to profit from Black Friday sales and the festive season shopping period.
It also seems that high-income earners with savings to spend and others with increased appetite for credit, continue to benefit furniture and hardware retailers.
In general, retail selling prices were kept elevated but purchasing prices continue to rise at an even faster rate. Among the three retail groups is a by-product of supply chain disruptions, increased freight prices, a weaker rand, and rising fuel and electricity prices.
The 2021Q4 survey results suggest that semi-durable and durable goods retailers are passing on these higher input costs to consumers in the form of higher selling prices, but weaker food and beverage sales at the retail level have (finally) started to dent the pricing power of non-durable goods retailers.
According to Stats SA, consumer price inflation increased by 5.0% year-on-year in October 2021, while producer prices rose by 8.1% over the same period.
Looking ahead, as the services sector journeys on the road to full recovery, the retail sector is expected to lose momentum. However, of the three retail categories, semi-durable goods retailers may be able to take some advantage of this recovery as more people return to work and increase their spending on summer clothing and business attire.
However, the discovery of the new COVID-19 variant in the country, load-shedding, escalating cost increases, global supply chain disruptions and a weak labour market remain causes of uncertainty for the sector.