Rising costs brought by rolling blackouts, fuel prices, insurance and low economic growth are likely to further impact retailers’ growth and profitability this year, an analyst says.
In addition, rising interest rates and high inflation will continue to put pressure on consumers.
Load-shedding increased in the second half of last year, resulting in thousands of lost shopping hours for retailers such as TFG, which said it lost R400m in sales in the six months to September.
The company will spend R200m on back-up power for some of its stores. In October, Mr Price said September was a poor trading month for the market as a whole, with 44.1% of trading hours lost and sales declining 6.7% because of load-shedding.
Paul Steegers, senior equity research analyst at Nedbank, said in addition to macroeconomic factors, “we are of the opinion that rising costs for retailers in many areas, such as wages, fuel, insurance and the impact of severe load-shedding, will affect their growth and profitability”.
He said besides the prospect of weak economic growth in 2023 and rising interest rates, the greatest risk to the sector in this year is ongoing and worsening load-shedding.
In 2022 the country suffered about 2,881 hours (combined 120 days) of it and it is likely to continue to affect the economy and retailers this year, given Eskom's warning that the outlook remains constrained.
“This impacts the South African retail sector negatively in a number of ways, including rising costs for backup generators and, more importantly, lost trading hours.”
Steegers said food inflation remains elevated, rising to a new high of 12.8% year on year in November 2022.
“Internal inflation at food retailers is slightly lower than the official measures, but has also risen, and we believe it will remain elevated into the first half, before falling back through the remainder of the year.
"Factors such as oil prices, the rand and soft commodity prices will have an impact on food inflation.”
CGCSA CEO Zinhle Tyikwe said the outlook for the consumer goods sector remains positive despite economic conditions characterised by high inflation, the cost of basic commodities and the impact of elevated interest rates on consumer confidence.
“[Ongoing load-shedding] is also a cause for concern for the sector and retailers in particular. Consumer spending and retail sales will continue to be affected, particularly by the impact of high household debt, worsened by rising interest rates.
The CGCSA remains hopeful the economy will continue to grow, albeit slower than expected because of local and global macroeconomic conditions,” she said.
Commenting on the performance outlook for JSE-listed retail companies, Steegers said in 2022 the food and drug sector, which includes Clicks and Dis-Chem, narrowly outperformed the general retail sector, made up of companies such as Mr Price, Cashbuild and Italtile, but both showed a negative index return and underperformed the wider market, the JSE-All-Share index.
“We believe it is vital for companies to grow volumes and continue to take market share if they are to outperform in the market against a backdrop of limited underlying growth. The good news is that valuations are reasonable in the retail sector, especially for clothing retailers, which have seen big de-ratings in anticipation of weaker earnings growth.”
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