Retail confidence dropped in the second quarter of 2023 as a result of soaring load-shedding-related costs, persistently high food inflation and rising interest rates — now at a 14-year high — all factors that have led to a marked deterioration in retailer profitability.
The Bureau for Economic Research’s (BER’s) quarterly retail trade survey shows that retailer confidence dropped to 20% during the second quarter of 2023, down from 34% in the first quarter.
The data shows that the BER’s retailer confidence and profitability indices both slumped to their lowest levels since the second quarter of 2020, when hard Covid-19 lockdowns were implemented.
BER senior economist Helanya Fourie said load-shedding had increased operational costs for retailers, “in that [they] must invest in backup power or buy diesel for generators”.
Fourie said: “It also affects consumer confidence and directs spending away from retail [such as] when consumers opt for takeaway and restaurant meals during load-shedding.”
She added that a surge in consumer spending on solar panels, inverters and batteries had also reduced available household income.
Fourie said when retailers were asked if they expected business conditions to be better, the same or poorer next quarter, the majority answered that they expect conditions to worsen in the near term.
“Load-shedding remains the main driver of the loss in confidence, and the BER Retail survey shows that profitability is suffering as a result,” she said.
The data pointed to some divergence between how different retail subcategories are trending. While retailers of non-durable goods seem to be taking strain, semi-durable goods sales continue their post-Covid recovery.
“One driver might be a divergence in inflation trends,” Fourie said. “In April, clothing and footwear prices had grown by 3% year-on-year, whereas prices of food and nonalcoholic beverages were experiencing the ninth month of double-digit inflation, 13.9% in April.
Fourie said another factor might be that more people are returning to the office, travelling, and resuming recreational activities such as concerts, parties and sporting events following the Covid-19 pandemic. The social relief of distress grant introduced in 2020 may also specifically have boosted sales of low-priced apparel. Ironically, for durable goods, power cuts help maintain sales of electrical appliances when these break down due to power surges.
The survey also shows that the non-durable goods selling price index climbed to 90 points in the second quarter, up from 79 in the previous quarter.
“The cost of investing in backup power and the depreciation in the rand exchange rate during May likely played a big role in retailers’ purchase and selling price expectations,” Fourie said.
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