The local furniture industry has been dealt a double blow as a slowdown in consumer spending and a tighter credit market have crippled sales growth, analysts say.
Jean Pierre Verster, an analyst at 36One Asset Management, said the biggest challenge to the furniture industry was the decline in disposable income of consumers, since furniture was a discretionary purchase.
“The easy flow of credit over the past few years stimulated credit sales of furniture,” Verster said. “But now that lending has been tightened, the challenge is to keep up sales growth in the absence of strong credit growth.”
On Friday furniture retailer Lewis said its revenue for the quarter to June rose 4.7 percent year on year.
Lewis chief executive Johan Enslin said the firm’s target market had become cautious due to rising unemployment and uncertainty in the labour market. This created a tough credit environment.
According to Statistics SA’s retail sales data for June, furniture sales declined the most, contracting 2 percent from a year earlier.
In May, Enslin said 75.3 percent of sales were made on credit, up from 68 percent three years ago. The firm also said it would be opening 20 new stores in the next four years, adding to its 617 outlets nationwide.
Verster said the Lewis update pointed to continued tough conditions in the furniture market. “But their revenue growth of 4.7 percent indicates that they are taking market share from competitors,” he said.
Verster said consumers were under pressure from rising fuel and food prices, while income remained stagnant. This affected lower-income workers the most as they had less disposable income.
Consumers had seen the benefit of seeking credit from lenders that specialised in credit, as opposed to retailers that also supplied credit, like Lewis and Ellerines, he said.
Earlier this month unsecured lender African Bank Investments Limited (Abil) said it would sell its furniture retailer, Ellerines, which had consistently underperformed. In June Abil wrote off bad loans, leading its share price to drop 53.4 percent to R15.
“The idea of a retailer that also gives credit was attractive because you would leave the store with a new couch and cash in your pocket,” Verster said.
In February, furniture retailer JD Group said its unsecured loan book had more than doubled to R2.2 billion in the six months to December from R1bn in June last year, while the overall loan book had increased by 30 percent to R9.5bn in the period. But the retailer said it would put more emphasis on the accuracy of credit affordability calculations to avoid reckless lending after the National Credit Regulator said it would increase scrutiny of lenders.
JD Group owns chains such as Joshua Doore, Barnetts, Russells and Hi-Fi Corp.
Gryphon Asset Management analyst Cassie Treurnicht said lower living standards measure (LSM) individuals had been most affected by the clampdown on credit. “Higher LSM groups don’t really buy on credit.”
He said retail sales figures showed the bad state of the economy. There needed to be government intervention, as it had been holding out on providing economic relief to lower-income individuals.
Lewis gained 0.75 percent to close at R59.15 on Friday.