Furniture retailers at risk from GDP slide

Comment on this story


BR_br woolies0

Reuters

Woolworths may be more resilient than other clothing retailers due to its richer target market and lower credit sales. Photo: Reuters

Johannesburg - Furniture and clothing credit retailers might take a broadside hit from the contraction in the economy, analysts agreed yesterday.

Most vulnerable are retailers of high-priced appliances and clothing, while food shops are expected to be more resilient as they deal in cash.

“Out of food, clothing and furniture, furniture is the most discretionary category and it is also fuelled by credit,” Daniel Isaacs, an equity analyst at 36One Asset Management, said.

“These guys will be worse off because they are selling big-ticket items, which are often heavily funded by credit.”

However, Isaacs believes not all furniture retailers will be equally affected.

“Lewis is not doing as bad as the sector, as its competitors are far worse off. Lewis is by far the best performer in the listed furniture space so this gives them an opportunity to pick up market share,” he said.

He conceded that the overall theme, when considering the impact of the first-quarter gross domestic product numbers on retailers, would be how discretionary the item was and what credit was involved.

“In the clothing space, the retailers that are least affected by credit are Mr Price and Woolworths.

“Mr Price has an excellent value offering and that would be good at this time because people will be looking at spending less per item.”

Isaacs added that Woolworths would do better than rival clothing retailers because it had higher exposure to a customer with more discretionary income who would therefore have more financial padding in tough times.

Abri du Plessis, the chief investment officer at Gryphon Asset Management, said a possible further interest rate hike would affect all consumers.

“With the possibility of interest rate hikes [to rein in inflation], we are likely to see even people in the higher-income brackets starting to feel under pressure,” Du Plessis said.

Isaacs said food retailers would remain resilient as they were not exposed to credit purchases and food was the least discretionary item.

“Overall we would expect food retailers’ performance to be more resilient than the other two categories.”

Commenting on food service companies such as Famous Brands and Taste Holdings, Isaacs said this sector would also remain resilient because people’s lifestyles required convenience. “People do not have time to cook and also if you compare the cost of groceries versus the cost of what one can get from quick-service restaurants, the difference is sometimes negligible.”

Nevertheless, food retailers would remain “the last men standing” because people had to eat, although “consumers might opt for a trade down instead of buying the usual food brands”, Du Plessis said.


sign up
 
 

Comment Guidelines



  1. Please read our comment guidelines.
  2. Login and register, if you haven’ t already.
  3. Write your comment in the block below and click (Post As)
  4. Has a comment offended you? Hover your mouse over the comment and wait until a small triangle appears on the right-hand side. Click triangle () and select "Flag as inappropriate". Our moderators will take action if need be.

     

Join us on

IOL-Social networks IOL-Social networks IOL-Social networks IOL-Social networks
Sudoku