The retail sector took a worse-than-expected pummelling in July, as civil unrest in parts of KwaZulu-Natal and Gauteng left big brands such as Massmart and Clicks counting the cost of damaged shops and looted distributions centres, compounded by the tail effects of the Covid-19 third wave.
Retail trade sales shrank 0.8% year-on-year in July, Stats SA showed on Wednesday — far worse than the 3.3% growth forecast by a Bloomberg poll of economists, and down from June’s revised 10.5% expansion.
General dealers contributed the most to the annual decline
On a seasonally adjusted basis, retail sales fell 11.2% month-on-month, a sharp plunge from June’s 0.7% growth. In the three months ended July 2021, retail sales decreased 2.9% compared with the previous three months.
The data underscores the battle facing the sector as it claws its way back from harder lockdown restrictions and the damage done after protests over the imprisonment of former president Jacob Zuma (who was jailed for contempt of court), descended into violence and looting.
Business Day has previously reported that several large retailers had warned of weaker July or August 2021 sales, compared with the same period in 2020, after being hit by the riots that destroyed many businesses.
On Tuesday, pharmaceutical, household and beauty chain Clicks said its revenue for the year ending August 2021 would be flat in the wake of the unrest. According to the retailer, it would take a year before all the stores damaged in the rioting were reopened.
It joined the likes of clothing retailers Mr Price, Truworths and Massmart (which owns Game and Makro), who have all reported weaker July or August sales compared with 2020, when the country was emerging from the worst of the Covid-19 lockdown.
The civil unrest in parts of the country in July hurt retail sales performance, said Investec economist Lara Hodes in a note, adding that, aside from certain stores being subject to looting and arson, many retailers in surrounding, and even unaffected areas, closed for a period of time as a precautionary measure.
The country operated under tighter lockdown restrictions from the end of June until July 25, with restricted hours of trade and a prohibition on the sale of alcohol, which would have also negatively affected sales, Hodes said.
A potential fourth wave of the virus towards the end of 2021 — during the important festive season shopping period — could have a “devastating effect on businesses already struggling to stay afloat”, she said.
Nedbank economists Nicky Weimar and Candice Reddy expect the effects of the lockdown and the unrest to linger until businesses can be restored to full capacity.
“Significant improvements on the jobs front and the ability to limit strict restrictions on economic activity will be vital in rebuilding demand in the economy,” they said in a note. “Progress on vaccinations and favourable interest rates will also offer support to the sector's recovery.”
Stats SA recently rebased SA’s GDP, which revealed that on the demand side of the economy, household final consumption expenditure was 16% larger that previously thought, underscoring the importance of consumer spending to growth.
The retail data also follows consumer confidence figures released last week that suggested confidence did not deteriorate after the unrest in the third quarter - though it remains dismally weak.
The FNB/BER consumer confidence index recovered some lost ground rising to -10 index points in quarter three, up from -13 points in quarter two.
At these levels however it remains well below the long-term average of +2 points.
While the unrest undoubtedly hurt the consumer confidence, the announcement of fiscal support measures, including the extension of the R350 relief of distress grant, and a generous wage settlement for public-sector workers, countered the harm caused, FNB said at the time.
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