Broll’s Q1 retail report hints at downturn
Category Retail Sector
The upswing in consumer confidence in the first three months of 2018 was a welcome change from the depressed environment which overshadowed the last quarter of 2018. “Ramaphoria”, unrealistic as it may have been, took the consumer confidence index from -8 in Q4 to +26 in Q1, with many retailers enjoying buoyant sales as a more positive political and economic outlook for the country took hold. However, it appears that the glow is not likely to last, according to Broll’s incisive SA Retail Snapshot for Q1 which is now available.
With numerous South African shopping centres under its management, Broll is able to swiftly ascertain how and where consumers are spending. What is evident from its Q1 report is that some retail categories experienced marked changes in the first quarter. Consumers, likely anticipating the first VAT increase in 25 years from 1 April, helped to push March retail spend up strongly in the Department Store category for example, with General Dealers as a sub-category recording year-on-year growth of a whopping 25.4% as shoppers rushed to do bargain and bulk purchasing. The Easter long weekend, which started at the end of March 2018, also contributed to the high growth reflected within the Department Store category, while positive growth was seen in the Food Category. Consumers stocked up on essential as well as indulgent goods in anticipation of a lengthy and relaxing Easter break while others took leave over this period thus benefiting Food Services. By contrast however, Accessories, Jewellery and Watches as well as Entertainment all registered a drop in growth in Q1 which the Broll report ascribes to a possible reduction in luxury and leisure spend amongst many shoppers. With household debt to disposable income standing at 71.2% at the end of last year more and more consumers are tightening their belts.
While April technically falls in Q2, the Broll retail report highlights the startling change in consumer spend which was witnessed just one month after Q1. Some commentators have even referred to it as the “April retail sales shock”. An inflation rate increase to 4.5% in April and a prime lending rate of 10% together with the VAT hike to 15% and Budget tax rate changes hit consumers hard in April. The inflation rate had reached a seven-year low of 3.8% in March. The jump in April’s rate impacted on price increases in three product categories in particular. Fuel (9%), Meat (9%) and Beer (8%) were hardest hit while Wine, Restaurants, Primary and Secondary Education, Water and Other Services were rated among the top 10 highest price increases. Broll notes that year-on-year growth declined across almost all categories in April.
Whether the positive sales growth of Q1 will continue to be eroded remains to be seen and Broll’s research team will track the long-term impact of the tax increases. What is indisputable is that retailers will need to work smarter to maintain their existing customer base and more innovatively to attract new custom in a highly challenging economic environment.
Author: Broll Property Group Research