Retailers heading for a bleak Christmas

22 November 2014 - 21:56 By Adele Shevel
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Christmas tree in Sandton City in Johannesburg. November 20, 2014.
Christmas tree in Sandton City in Johannesburg. November 20, 2014.

Christmas is unlikely to bring much cheer to retailers this year as consumers are unable to splash out as they have done before.

Strikes, rising unemployment and sluggish growth have cornered indebted consumers, who are no longer able to borrow money easily.

With less disposable income in shoppers' pockets, this festive season could be the weakest since 2009, at the time of the global financial meltdown.

Christmas sales are forecast to grow 6% in current terms with no real growth forecast, according to a report released this week by insurance group Credit Guarantee.

Credit Guarantee said retailers would need to discount heavily to move stock, which may benefit customers.

But, even so, spending remains severely constrained "and the current outlook for this Christmas trading season is thus the weakest since the recession year of 2009".

In 2009, the festive season contributed 11.4% of annual retail sales. This stood at 12.1% in 2011 before dropping to 11.6% last year, said the insurance group. Some retailers have said in the past that Christmas contributes up to a quarter of annual sales.

"Retailers are going to have to pull out all the stops if they wish to garner a share of the additional R5-billion in sales expected in December in a best-case scenario," it said.

The nominal and real growth in December 2013 retail sales of 4.9% and 1.5% respectively was below expectations, and reflects the increasing pressure on household spend as economic growth has ebbed. Conditions are weaker than they have been and this points to a disappointing year-end.

Although average wage increases of about 8% have been secured in the first nine months of the year, the loss of wages due to extensive strikes and lacklustre growth implies that real disposable incomes "will likely yield a mediocre 1% improvement this year at best".

Rising bad debts mean cash is now king, and retailers and lenders are more reluctant to advance credit.

"The trend by retailers to shift towards a greater reliance on cash as opposed to credit sales, tighter lending standards and the waning appetite for credit by households implies a further waning in the contribution of Christmas sales."

As always, how these operators fare depends on just where they are in the retail pie. But Credit Guarantee said it was detecting very little improvement in volumes in the run-up to Christmas across food manufacturers and wholesalers. Although high-end electronics and appliances may hold their own, the rest of the sector is under strain.

The cellular sector is showing steady growth as opposed to the normal ramp-up towards year-end. And there is pressure on semi-durables such as clothing and footwear, where sales have grown 8.8% compared with 11.1% the same time a year ago. Retailers of hardware, paint and glass expect a strong showing.

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