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Home » Industry News » Business Advisory & Financial Services » Retailers face a difficult start to the year

Retailers face a difficult start to the year

Trends in retail, wholesale, and motor trade signal information about the demand for goods. If these sectors trend downward, it often indicates constraints on household spending, increased spending on other services (like restaurants, transport and real estate) or higher savings due to a perception of a riskier environment (as seen during the COVID-19 pandemic).

The BER’s trade survey for the first quarter of 2023(1) suggests a sector under pressure and facing weak consumer demand. Retail respondents are now less confident than they have been, on average, since 2009. Confidence dropped from 42% to 34% in the first quarter of 2023, which brings retail confidence 6% points below the long-term average. The retail business conditions index supports the downward trend in confidence: it fell from -23 to -41 index points. While it is common for the first quarter of a year to have weak sales compared to the festive season, retailers expect lower sales this quarter than in the first quarter of last year. In fact, according to Stats SA, retail sales in January were -0.8% lower than at the start of 2022. The BER’s 2023Q1 survey results indicate a continuation of the contraction in durable- and non-durable goods sales volumes that started in the fourth quarter of 2022. However, semi-durable goods seem to hold firm on the back of a recovery in clothing and footwear sales.(2)

Various factors cause these trends. Consumers are pinched by high inflation (especially food prices, hurting the sale of non-durable goods) and an elevated interest rate (heavily impacting the sale of durable goods). Consumer confidence is at levels last seen amid the COVID-19 pandemic and in 2022Q2 when deadly floods devastated KZN, and the economic effects of the Ukrainian war started to manifest. In addition, retailers are trying to mitigate load-shedding by spending hard-earned revenue on backup power solutions. Anecdotal evidence suggests that many high-income consumers are also investing in backup power, reducing their disposable income.

On a positive note, the purchase and selling price indices for retail goods (on aggregate) confirm that although price levels remain high (as confirmed by February’s CPI data), price increases may be tapering. Food price inflation, however, remains sticky.

(1) The survey was conducted between 8-27 February 2023.

(2) Non-durable goods retailers include general dealers, retailers in specialised food, beverages and tobacco, and retailers in pharmaceutical and medical goods, cosmetics and toiletries; Semi-durable goods retailers include retailers in textiles, clothing, footwear and leather goods; Durable goods retailers include retailers in household furniture, appliances and equipment, and retailers in hardware, paint and glass.

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