Stats SA released its February 2024 retail sales update in the middle of April, with consumers still appearing to be under extreme pressure. The year hasn’t started off well in terms of growth, though it looks as though it may be slightly better than at the same time in 2023. Though load-shedding has eased marginally, interest rates remain extremely high and port logistics are problematic.
In February, real retail trade sales (at constant 2019 prices) declined 0.8% year on year after a downwardly revised 2% decline in January. Retailers in clothing, footwear, textiles & leather (CFTL) reported the largest decline, with sales falling 6.8% year on year and contributing minus 1.1% of the net total retail sales figure. It appears that CFTL retailers are taking strain from a host of foreign online retailers that are proving to be extremely price competitive.
CFTL sales had been remarkably strong for a long time since bouncing back sharply after Covid lockdowns were eased. But they have taken competition from a number of Far East online retailers such as Shein and Temu more recently. Congestion at SA ports has often resulted in nonavailability of stock, resulting in lost sales. This is reflected in the poor trading updates from JSE-listed CFTL retailers such as TFG, Truworths and Woolworths clothing.
The success of these online retailers has obviously ruffled the feathers not only of the bricks and mortar CFTL retailers but also the local online retailers. They complain about unfair competition relating to unrealistically low prices for their products as well as allegations that these companies are taking advantage of a loophole in SA tax law that allows them to sell their products locally without paying any duty or tax. Of course, the companies deny these allegations, insisting that their low prices arise as a consequence of economies of scale, the application of manufacturing technology and effective marketing. Numerous complaints have been made to the trade, industry & competition department about these companies but as yet no discernible action has occurred.
If [the trend continues] and nothing is done about it, there could conceivably be job losses in the local CFTL industry, as companies streamline to cut costs even further.
It will be interesting to track the retail sales growth of the local CFTL sector over the next few months to see if this negative trend remains in place. If it does and nothing is done about it, there could conceivably be job losses in the local CFTL industry, as companies streamline to cut costs even further.
Hardware, paint & glass is a proxy for home improvement/DIY and this sector has been in secular decline for some time, ever since the homebody economy associated with beautifying homes to make them more efficient during the work from home period of Covid peaked. But the trend at least appears to be bottoming and there are nascent signs of a gradual improvement. The two main JSE-listed companies in this sector are Cashbuild and Italtile, and the share prices of both of these companies have languished badly for the past couple of years.
Household furniture, appliances & equipment was surprisingly strong, with 3.6% growth year on year in February, after 6% growth in January. The two food categories appear to have stabilised at low growth levels in the past couple of months.
The pharmaceuticals and medical goods, cosmetics & toiletries sector has taken a big knock over the past couple of years but the trend appears to be bottoming. This is reflected in the substantial drop in share price in both Clicks and Dis-Chem during the same time period. February’s sales growth at 2.6% was especially strong.
The last category in retail sales is All Other Retailers, a veritable assortment of disparate retail activities, but which also includes online retailers. As mentioned earlier, local online retailers have been experiencing tough competition in the CFTL category as well as general merchandise. This may be reflected in the weak retail sales situation in all other retailers, though it is hard to say with certainty, as Stats SA doesn’t give a granular breakdown of the composition of this broad category.
• Gilmour is an investment analyst.
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