Retail stocks could be in for another rough ride in 2020, as the threat of load-shedding and an economy predicted to grow by less than 1% continue to cast a shadow over the sector.
The JSE’s general retailers index, which includes Massmart, TFG and Pepkor, has dropped by almost 8% so far in 2020 — after recording its biggest fall in 21 years in 2019.
The food and drug retailers, including the likes of Pick n Pay, Spar and Clicks, have declined by more than 3% in 2020 as the retail sector battles a drop in consumer spending. This was also reflected in the December print for retail sales, with the sector experiencing its worst year-on-year decline in more than a decade.
The JSE all share has gained 1.36% since the beginning of 2020.
“Disposable income is under tremendous pressure. The increases in VAT, income tax and related tax (take fuel, for example) have been on the rise while SA employment has also faced headwinds,” Gryphon Asset Management portfolio manager Casparus Treurnicht said. The unemployment rate remained at a record high of 29.1% in the fourth quarter of 2019.
Investment analyst Chris Gilmour says declining domestic economic growth expectations mean the outlook for consumer spending, which contributes about 60% of GDP, remains bleak. The IMF and the World Bank cut SA’s growth forecast to below 1% in 2020, citing concerns about the country’s public finances as one of the main issues.
“Consumer spending is not going to do very much, unemployment remains stubbornly high and the weaker rand has increased the cost of imported goods. The consumer is getting squeezed everywhere and the outlook for the next couple of years is not great,” Gilmour said.
Shares in Walmart-owned Massmart lost nearly half their value in 2019. The company, which owns brands such as Game and Makro, recently said it expects to report a headline loss of more than R1.2bn for the year, citing a decline in discretionary spending among consumers. Its shares have recovered marginally in 2020, having gained 6.35%.
“In the year ahead you’ll get a bit of good news here and there, the traders will feed on that, and it will bump up share prices only for them to come back down again when the realisation creeps in that this isn’t sustainable as consumer spending is not strong,” Gilmour said.
Spar said on Tuesday its Southern Africa sales increased 4.9%, while those of building material retailer Build It declined 3.4% in the 18 weeks to end-January.
Shoprite defied the general trend in the sector with local sales increasing 10% in the six months to end-December, with liquor sales jumping 20%.
So far in 2020, Woolworths has declined 9.61%, Pepkor 9.8%, TFG 8.22%, Truworths 12.32% and Mr Price 4.89%.
Though President Cyril Ramaphosa promised in his state of the nation address on Thursday to increase Eskom’s generating capacity through alternative energy sources, the power utility’s rolling blackouts may further harm the retail sector in 2020. Load-shedding has affected business activity for retailers as they restrict the consumer’s ability to use shopping outlets.
Gilmour said Eskom’s struggle to provide consistent electricity supply will likely impede the sector’s growth prospects, while Treurnicht said he doubted government would implement the policies needed to boost the economy and the sector given “the poor implementation in the past”.
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