Price hikes blunt growth in retail sales

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BR Consumer 4098[1]

Johannesburg - The slight uptick in retail sales growth during the festive season fizzled and died in the first quarter of this year, according to the EY/Bureau for Economic Research (BER) retail survey released yesterday.

The survey attributed this downward trend to price hikes that resulted in volume growth slowing significantly during last month and this month.

The survey, which was conducted in February and March, also showed that retailers in the food and groceries sector and those specialising in clothing, toys and footwear, have joined furniture and household appliance retailers in reporting weak sales growth.

“This means that retailers are at the point where they can no longer… absorb some of the input cost pressures. They did it in the past, but they are now also getting squeezed and have to pass prices down to the customer,” Derek Engelbrecht, a retail and consumer products sector leader at consultancy EY, said.

He said a lot of participants in the survey were surprised by the difference in price increases that they had to take to the market compared with what they had expected to pass on.

The BER indices measuring overall purchasing price and selling price increases in the retail sector rose substantially to reach five-year highs during the first quarter. Retailers have attributed this to cost pressures causing notable hikes in their selling prices.

“The increase in the BER’s index for retail selling prices corresponds with the marked acceleration in the consumer price index inflation rate, from 5.4 percent in the final quarter of 2013 to 5.9 percent” last month, Engelbrecht said.

He added that consumers should expect further upward pressure on inflation in coming months.

Furniture and appliance retailers were not alone in reporting a significant uptick in their selling prices, as consumer goods wholesalers and manufacturers anticipated hikes in their selling prices during the first quarter.

Engelbrecht said the price hikes were bad for consumer confidence, which was low because of weak job prospects and tight credit access.

“Wounded by a substantial slowdown in unsecured credit extension, coupled with waning real disposable income growth and a sharp decline in consumer confidence levels, furniture and household appliance sales volumes contracted by 4.8 percent during 2013,” he said.

Given subdued retail sales growth, coupled with relentless downward pressure on profitability levels, it is not surprising that the confidence of retailers remained very low during the first quarter. Only 39 percent of respondents reported that they were satisfied with prevailing business conditions in the retail sector.

This was down from 40 percent in the fourth quarter of last year and 49 percent in the quarter before that.

A majority of retailers surveyed expected a further deterioration in sales growth during the second quarter of this year. - Business Report


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