Due to the non-discretionary nature of spend on food and drugs compared with clothing and accessories, the JSE food and drug index has proven a lot more resilient than general retailers over the past five years.
From its latest peak in April 2018, it has fallen by 20%, compared with a 59% drop in general retailers since March 2018, and a fall of 22% in the all share index since its peak of January 2018.
That outperformance seems set to continue in the wake of the coronavirus pandemic after lockdown has been lifted; first because food and drug has been deemed essential shopping, while clothing and footwear (the main component of general retailers) is not; and second, the expected large contraction in the SA economy caused by the reaction to the coronavirus means that even further unemployment will adversely affect discretionary spend.
It may take many years before general retail regains the glamour status it enjoyed in the early part of the millennium when credit was generous. This sector requires huge reinvention, particularly regarding greater leverage of online shopping opportunities.
So far, most clothing retailers use their websites as marketing platforms, rather than offering deep online buying availability. Online retailing in SA is still in its infancy, despite being around for more than 20 years, with total penetration of online shopping at a small 2% of total retail sales.
One of the biggest input costs for any retailer is rent. Already, Foschini, Dis-Chem and Pepkor have announced withholding of rentals during the lockdown period. If the sector made far greater use of online shopping, they could reduce chunky real estate costs.
Easier said than done, requiring a huge improvement in technology and delivery logistics, and a profound consumer mindset change. Thankfully, slow and expensive broadband is disappearing and dedicated online retailers such as Takealot have perfected their logistics. But most South Africans like going to suburban malls as these offer a glitzy safe shopping experience with a large degree of entertainment, things which are not available through the online route.
One more permanent effect of the lockdown may be that online shopping becomes far more acceptable to South Africans. Having tried it a few times, they could progressively embrace it, just like their counterparts in the UK and US, where penetration is more than 15% of total retail sales.
However, the pandemic is proving to be a challenging time for the uninitiated to try online shopping. In the UK, as well as in SA, retailers were not prepared for the March rush, with delivery slots often being less than useful. I can vouch for this, having attempted to place an online order with Woolies Foods in late March, only to find that the earliest delivery slot was April 27, and this may put many off from returning.
Moving from mode of purchase to what is being sold, non-essential shopping is banned in many countries, with spend ceasing or being diverted to essential shopping, mainly food and pharmaceuticals. Nowhere is this diversionary trend more apparent than at Edcon, the largest clothing retailer in the country, where sales slumped in early March and CEO Grant Pattison tearfully told suppliers to expect non-payment.
As a hybrid of clothing and food, Woolworths offers a unique insight into the effect of the lockdown on both categories, seeing food sales increase by 28% during March 2020 compared with March 2019. The group makes the point that just before lockdown there was unprecedented demand by shoppers for essential items, but this has since moderated as consumers became more confident in supply chain capability.
Comparatively, clothing sales plummeted by 28% as it had to close this section of its large stores.
Once the lockdown has ended and industry gradually starts up, clothing retailers could see an initial spike due to pent-up and replacement demand. Beyond that, however, the outlook is not good in our bleak economy plagued by rising unemployment from an already elevated level.
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