Retailers expect festive sales to disappoint

December 1, 2015, 8:15am

By Zeenat Moorad, Business Day Live. Picture: JAGADEESH NV / EPA

THE sound of Boney M’s Christmas album wafts through the air, stores are stacked to the brim with gifting offerings and jam-packed malls give the impression of a jackpot festive season for South Africa’s retailers.

But fewer tills are set to ring this Christmas as companies prepare for a bleak festive trading season.

Shoppers are looking for greater value, are far more discerning and price conscious than they have been in the past — household budgets are under strain because of a moderation in income growth, rising living costs and mounting debt.

This means more bargain hunting as frugal shoppers try to make their rands stretch further.

The majority of retailers in EY and the Bureau for Economic Research’s festive season retail survey signalled that growth in sales volumes is significantly lower in the run-up to Christmas compared to last year’s festive season, despite efforts to contain selling price inflation.

"All retailers indicated that, in their expectations, retail sales growth will disappoint in the run-up to Christmas. A barrage of negative developments has been weighing on the spending power of consumers since the beginning of the year, including job losses, tighter credit conditions, higher personal income tax and indirect taxes, slower growth in government wages and social grants expenditure," said Derek Engelbrecht, consumer products and retail sector leader at EY.

A dramatic depreciation in the rand exchange rate, the pedestrian performance of stock prices on the JSE, as well as rising interest rates have also weighed.

At least 250 retailers participate in the survey, which was conducted between October 25 and November 16.

Mr Engelbrecht said because of low confidence, consumers would likely favour practical gifts instead of big-ticket items.

"With retail prices set to increase, adding to the flood of adverse economic developments weighing on household income growth, most retailers expect volume growth to slow further into the New Year," he said.

Consumer spending on durable and semidurable goods is projected to come under the most pressure.

In addition to the fact that these categories are vulnerable to the inflationary effect of the depreciation in the rand, the recent interest rate hikes and depressed consumer confidence levels will also add to the pain.