Cape Town - South Africa’s 12 largest retailers shrugged off the effect of a weak economy and raked in R600 billion in annual sales last year buoyed by a strong showing from groceries, specialty and clothing stores.
An analysis by professional services firm EY found that local retailers performed well in 2016 in a subdued economic environment that was characterised by constrained consumer spending.
EY lead consumer products and retail partner Derek Engelbrecht said the retailers remained highly dependent on the home market, although their turnover growth was considerably stronger outside South Africa in the period.
“More recently, South African retailers are branching into the UK and Europe - including Truworths, Foschini Group and Spar,” said Engelbrecht.
Setbacks
He added that this was despite some hiccups experienced by South African retailers trying to get a foothold in overseas markets. “Many South African retailers like Clicks, Pick n Pay and Truworths have had to withdraw from Australia - but that has not deterred Woolworths.”
Retail giants Woolworths last month said it had put up a new regional structure for its Australasian businesses, David Jones and Country Road Group, in a bid to create a single entity.
The company announced its intention to relocate both the existing David Jones head office in Sydney and the Country Road Group head office in Melbourne to a campus based in Richmond, Melbourne.
It bought David Jones for $2 billion (R27.6 billion) two years ago.
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The EY analysis found that speciality retailers had a return on equity of 51.6 percent, followed by clothing chains, which had 41.1 percent, with groceries retailers having enjoyed 22.3 percent .
In terms of share of profits, grocery retailers achieved 66 percent, while speciality and clothing retailers had lower shares at 18 percent and 16 percent respectively.
However, Engelbrecht said despite the retailers showing resilience against the economic headwinds the outlook for South Africa’s retail sector remains sombre, as the retailers try to recover from weak and declining GDP growth, low credit growth, low-investment levels and the drought.
The EY report said retailers had largely been putting their focus on the customer and improving their technological capabilities to mitigate against the weak trading environment
In December, research conducted on behalf of the SA Council of Shopping Centres found that real household consumption expenditure growth in 2017 was forecast to amount to 1.7 percent compared with the growth of 1.2 percent, recorded in 2016.
Engelbrecht said the recent credit downgrade would stymie growth in the sector.
According to trading economics, retail sales in South Africa declined 2.3 percent year-on-year in January compared to an upwardly revised 1 percent gain in December, which missed the market expectations of 1.2 percent.
The company also found that In the three months to January, retail sales increased 0.3 percent. Retail sales year-on-year in South Africa averaged 4.71 percent from 2003 until 2017, reaching an all time high of 15.50 percent in September of 2006 and a record low of negative 6.20 percent in April of 2009.