The confidence levels of retailers in SA jumped to a six-year high in the second quarter as expenditure rebounded sharply in comparison to the same period last year, when the country went into its first hard lockdown.
The recovery in retail confidence was also helped by record low interest rates, which encouraged higher income consumers in particular to boost spending on durable goods and motor vehicles. Nevertheless, Bureau for Economic Research (BER) economist Tshepo Moloi cautioned that the recovery could be undone should the third wave of Covid-19 infections result in harsher lockdown restrictions to curb the number of new cases, which have jumped from below 800 a day in early April to more than 13,000 in the past week.
Retailer confidence climbed to a level of 54 in the second quarter of 2021, up from 37 in the first quarter and the highest since the first three months of 2015, according to a report from the BER, which is part of the faculty of economic and management sciences at Stellenbosch University. The BER report showed wholesale confidence increased by five index points to 63 in the second quarter while new vehicle dealer confidence leapt from 35 to 63.
The survey was conducted between May 12-31 and asked retailers to indicate whether their sales volumes, selling prices and profitability were up, down or the same when compared to the second quarter of 2020. SA was under a strict level five lockdown that began at the end of March 2020 and lasted for several months during which the sale of alcohol, tobacco and various other goods was prohibited.
The recovery in retail confidence in the second quarter of 2021 was therefore partly due to a bounce back in expenditure from the low base in the second quarter of 2020.
“The country was under a massive lockdown in the same period last year which prevented retailers from selling certain items, so the recovery in sales is coming off a very low base,” Moloi said.
“But there were other factors as well, such as a pickup in confidence levels among higher income consumers who continue to benefit from low interest rates. They also have some income available that was not spent last year during the hard lockdown and they are now able to divert some of that expenditure to durable items.”
The SA Reserve Bank lowered its benchmark interest rate 300 basis points in 2020, with 275 basis points of cuts coming since the onset of the pandemic, in an effort to bolster the economy. Even so, annualised retail sales contracted for 10 consecutive months between April 2020 and January 2021 as the effect of the pandemic dampened sentiment and discouraged consumers from visiting shops and malls.
The BER release on the second-quarter 2021 recovery in retail confidence said retailers were becoming more optimistic about better trading conditions and higher profitability on the back of improved sales volumes and strengthened pricing power. Among the three retail categories, durable-goods retailers selling products such as hardware, furniture, electronics and household appliances recorded the highest level of confidence at 59 index points.
Despite the strong recovery in retailer sentiment, Moloi warned that the termination of the R350 a month Covid-19 social relief of distress grant, which came to an end on April 30, was likely to result in dampened expenditure on non-durable goods. This was especially likely to affect retailers focused on lower-income consumers, who were the main beneficiaries of the special relief grant.
“Low-income consumers who mainly spend on non-durable goods like food and petrol are still struggling, and with the ending of the Covid-19 social relief grant, their expenditure is likely to come under pressure,” said Moloi.
“With SA now in the midst of a third wave of the pandemic, other risks also lie ahead for the entire trade sector,” he said. “The slow vaccine rollout could see renewed lockdown restrictions to curb the spread of the virus, harming the sector. The weak labour market, as well as the power supply crisis at Eskom, also do not bode well for the trade sector in general.”
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