August’s retail sales figures paint an optimistic picture of consumer spending even though interest rates remain at historically high levels. This optimism is probably a function of load-shedding having ceased since March and relative political stability since the general elections at the end of May.
For the year to August 2024, retail sales growth in constant 2019 terms was a strong 3.2% year on year, following on from a revised 1.7% in July and 4% in June. To give some context to these figures, in the same three months a year earlier, retail sales growth was mildly negative.
With the predictable exception of DIY/home improvement, all categories of retail spending recorded positive year-on-year sales growth in August.
Household furniture, appliances and equipment was the standout and has been in a discernible uptrend since June 2023. In the year to August, sales growth was 10.5%, following a performance almost as strong in July, with revised growth of 9%.
Credit
The main reason was the availability of credit, and that feature can only improve as interest rates decline. This certainly bodes well for the only JSE-listed furniture retailer, Lewis Group, which is due to publish interim results in November.
Another category that relies on discretionary consumer spending is clothing, footwear, textiles and leather (CFTL). However, this segment has been far more volatile than furniture, perhaps the result of intense competition from Asian online retailers such as Shein and Temu. For the year to August, retail sales growth in this category was 2.7%, following a revised no change in July and 8.7% in June. The SA Revenue Service (Sars) intends to impose much stricter tax and VAT conditions on those Asian online retailers, which should level the playing field for all CFTL retailers.
The DIY or home improvement sector, for which hardware, paint and glass are a proxy, remains volatile. Retail sales declined 4.5% year on year in August after a 5.2% decline in July. Still, the trend does still appear to be mildly upwards, though it is likely to be some time before this sector tips into positive territory and stays there. And that isn’t great news for struggling JSE-listed home improvement stocks such as Cashbuild.
Pharmaceutical and medical goods, cosmetics and toiletries is a category that, until recently, had been mildly negative, though it turned mostly positive since April. Year-on-year growth in this category was 0.9% in August, following revised growth of 3.9% in July and 0.1% growth in June. This positivity is reflected in the recent strength in the share prices of Clicks and Dis-Chem.
The largest contributors to retail sales growth are the combined food categories of general dealers and food, beverages and tobacco in specialised stores. These two categories together comprise well over 50% of total retail sales. For the year to August, general dealers exhibited growth of 4.6%, following a revised 3.9% in July and 5.7% in June.
The other food category wasn’t as strong, with retail sales growth of 0.4% in June, a 0.1% decline in July and a rebound to 5.4% in August. Shown graphically, the two categories have settled down over the past year and mainly exhibit low-single-digit growth, which is to be expected from non-discretionary categories.
Finally there is the all other retailers category, a veritable hodgepodge of local online retailers, second-hand retailers, bookstores, sports suppliers and others. This category usually prints in the slightly negative low-single digits, but in August it recorded growth of 1.6%.
As interest rates continue to soften we should expect consumer spending as measured by retail sales to continue to improve. The end of load-shedding and Sars’ determination to level the online playing field should also help.
• Gilmour is an investment analyst.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.