SA consumers have settled into a familiar pattern in which food sales growth is printing at residual levels, while clothing, footwear, textiles & leather (CFTL) sales are strong, going by Stats SA’s February 2023 retail sales update released last week.
A large part of the explanation is the availability of credit in the various CFTL outlets. Those who can afford the higher interest charges are obviously spending on this discretionary category.
Pent-up demand for clothing clearly remains strong as people migrate back to working in an office environment and away from the casual clothing associated with working from home.
CFTL has been the strongest retail sales category for many months in the monthly data releases provided by Stats SA. Year-on-year growth in CFTL sales was 5.5% in February. This is good news for listed JSE clothing retailers such as Truworths, TFG and Mr Price, all of which sell clothing and accessories on credit to varying degrees.
Food sales growth from general dealers and specialised food retailers has levelled off in the past few months as consumers demonstrate reluctance to indulge in large weekly and monthly shops for fear of chilled and frozen food going off during load-shedding.
For February, year-on-year growth in both food categories was 1.5% in constant 2019 prices. This does not bode well for supermarket chains such as Shoprite and Pick n Pay or, for that matter, Woolworths Foods at the top end of the spectrum.
Show strength
Pharmaceuticals and medical goods, toiletries and cosmetics experienced a 3% year-on-year sales reduction, after a similar-sized decline in January. As the Covid-19 pandemic has receded globally, so too has the desire to boost immune systems by buying vitamins and supplements. This category has been weak for some time.
It is reflected in the relative weakness of the JSE’s pharmaceutical stock with the largest market capitalisation, Clicks, trading at a discount of 18% to its all-time high set in October 2022. Before that, Clicks had seemed almost invulnerable to the economic cycle.
Like CFTL, household furniture, appliances & equipment is a discretionary spending category, and as such would be expected to be taking strain in the current high-interest rate environment. And while it has not withstood the economic onslaught as well as CFTL, it has still managed to show a degree of strength sometimes. Yet, year-on-year sales growth in this category in February was -1.4%.
The hardware, paint & glass category, essentially a home improvement and DIY category, continued its long dismal slide in February, recording a 7.7% year-on-year decline after posting a 5.1% drop in January. This affects shares such as Cashbuild that operate in the home improvement category and that have been buffeted by the continuing downturn in the category. There are no indications that this trend is even abating, far less turning around.
And all the while, interest rates keep rising. At its March meeting, the monetary policy committee (MPC) of the Reserve Bank increased the repo rate 50 basis points, bringing it to 7.75%. This move, after January’s 25 basis point hike, surprised the market, with most observers expecting a 25 basis point hike at most. The next move in the repo will probably still be upwards, though a 25 basis point rise is expected rather than one of 50 basis points.
Load-shedding and interest rates will dictate the pace of retail sales growth over the next few months. Load-shedding is likely to worsen in the winter months as Eskom struggles to find capacity, while interest rates seem likely to peak in 2023, and perhaps even to start declining towards year end.
Expectations from retail spending for the foreseeable future should thus be tempered with a large dose of realism.
• Gilmour is an investment analyst.
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