Retail had its worst year on record in 2020 as consumers reeled from Covid-19 and its consequent economic lockdowns.
Retail sales fell 6.9% overall during 2020, the worst decline ever recorded and the only year of contraction apart from 2009, the height of the global financial crisis when sales contracted 3.2%, according to data from Stats SA released on Wednesday.
The outcome has underscored the pressure on households as consumers saw their incomes shrink, lost their jobs or became more cautious about making large purchases. Household expenditure accounts for about two thirds of GDP.
The outcome was reflected in the performance of retail stocks during 2020, with the JSE’s general retailers index, which includes names such as Woolworths, Massmart and Mr Price, down just more than 17%. The food and drug retailers index, which includes Pick n Pay, Shoprite and Clicks, was down about 8%.
The Stats SA data for December 2020 did, however, show that the pace of the annual decline in sales eased somewhat to a fall of 1.3% from a decline of 4.3% in November.
This was better than the median forecast for a 2.3% year-on-year contraction from 10 analysts polled by Bloomberg.
“The recovery in retail sales continued in December, but the rate of improvement remained slow as consumers were still cautious of spending given the uncertain environment,” said Nedbank economists Nicky Weimar and Johannes Khosa in a note.
Retail sales growth is expected to improve further in 2021, Weimar and Khosa said, “reflecting extremely low base effects formed in 2020 and also supported by low inflation and interest rates”.
More positive developments on the vaccine rollout to a large part of the population will help boost consumer confidence and willingness to spend, but they cautioned that “a resurgence in infection rates could result in stricter lockdown measures, which, together with persistent concerns about job security, could limit the rate of the expected recovery”.
December’s somewhat better-than-expected performance was assisted by retailers in the hardware, paint and glass sector, which recorded annual growth of 8%, as well as retailers of pharmaceuticals and medical goods, cosmetics and toiletries, which reported growth of 3.3%.
The record declines in 2020 notwithstanding, retail sales volumes performed better than initially expected, according to Siphamandla Mkhwanazi, FNB senior economist.
This was due to government relief programmes such as the Temporary Employee/Employer Relief Scheme (Ters), government’s extended social grants, and the low interest-rate environment, he said.
“Positively, some of this support has been extended to March,” he added, which will counteract the effect of rising food, electricity and fuel prices.
Nevertheless, the longer-term outlook for the industry remains “uninspiring”, Mkhwanazi said, “weighed on by rising unemployment and generally low consumer sentiment”.
The most recent FNB/BER consumer confidence index, for the fourth quarter of 2020, showed that, despite a comeback from the slump recorded under SA’s hard lockdown, confidence levels remained depressed. It also showed that consumers across all income groups remained reluctant to buy big-ticket items, such as cars, furniture or electronics.
Though a positive vaccine rollout offers some optimism for 2021, a return to pre-pandemic levels of activity will “likely be protracted as many consumers continue to face financial uncertainty”, said Investec economist Lara Hodes.
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