Retailers pessimistic about the future

By Lameez Omarjee for News24

A potential third wave of Covid-19 infections, and possible renewed restrictions will likely harm the retail sector and traders are generally pessimistic about the future.

The trade sector reported declining confidence across the board according to the retail trade survey for the first quarter of 2021, which was released by the Bureau for Economic Research (BER) on Tuesday. During the quarter, the country moved from lockdown level 3 restrictions – in which an alcohol sales ban and a lengthened curfew was implemented in January and February – to lockdown level 1 in March. Most of the responses were received during the last two weeks of February, when the peak of the second wave of Covid-19 infections had passed.

“As expected, the trade sector experienced another tough start to the new year. Much of the performance of the sector still largely reflects a Covid-19 narrative.

“Be it in terms of its restrictions on trade or its impact on the labour market, the pandemic’s sustained influence on business and consumer sentiment remains concerning amid the uncertainty about its trajectory,” the report read.

After making a recovery from its 29-year low of 11 points in the second quarter of 2020, to 50 points by the fourth quarter, retailers’ confidence levels declined by 13 points to 37 during the first quarter of 2021.

“This was to be expected considering that much of the momentum gained in the final quarter of last year was from pent-up demand for alcohol, anticipated festive season sales and the vital social grant top-ups, which all petered out by the first quarter,” the report read.

During the fourth quarter, retailers also benefitted from demand in durable goods – related to home improvements and home office equipment and furniture, but this was reversed during the first quarter. Sales volumes of durable goods and semi-durable goods, such as clothing, footwear, sporting equipment, declined. Sales volumes of non-durable goods like foods, beverages, tobacco, pharmaceuticals and cosmetics sales volumes held steady.

Price increases

“… Retailers in general kept selling prices elevated, and durable goods retailers in particular hiked their prices,” the report read. Price hikes are linked to increases in import prices and high food inflation. “Costs associated with Covid-19 related hygiene protocols also remain an extra expense to retailers. Looking ahead, rising fuel and electricity prices will also have an impact on prices,” the report read.

Wholesaler confidence levels remained relatively flat, declining from 59 points in the previous quarter to 58 points, this despite a deterioration in business conditions, lower sales volumes and a lack of pricing power. According to the BER, the sustained confidence may reflect optimism about business conditions in the second quarter.

“Consumer goods wholesalers expect to profit from a pick-up in alcohol sales amid eased trading restrictions, winter clothing sales and, more importantly, the resilient agricultural sector which has benefitted from favourable weather conditions and bumper crops,” the report read.

Non-consumer goods wholesalers – such as those selling building materials, chemicals and metal ores are expected to benefit from better global growth in 2021.

Weak economic growth, low business and consumer confidence and a fragile labour market knocked the domestic motor trade industry.

New vehicle trader confidence declined from 41 points to 35 points in the first quarter. “… Sales remain depressed and well below the 12-year average reading for this indicator,” the report read.

However, new vehicle dealers expect business conditions and sales volumes to improve in the second quarter. “Much of the optimism is fuelled by the prospect of a further recovery in the domestic economy and more people returning to work, which could boost sales volumes given that interest rates remain low,” the report read.

The BER highlighted that the overall retail sector is pessimistic about business conditions and sales volumes, going into the second quarter.

Other consumer pressures such as fuel and electricity price hikes, higher food inflation coupled with below inflation adjustments to social grants and the special relief grant and the Temporary Employer/Employee Relief Scheme drawing to a close in April, will negatively impact non-durable goods sales volumes.

“The weak labour market as well as the power supply crisis at Eskom also do not bode well for the trade sector in general,” the report read.

The BER noted that pent-up demand for durable goods, have mostly been met. Second quarter performance will likely depend on semi-durable goods retailers, especially linked to sales of winter clothes and school uniforms.

 

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