Struggling South African retailers will be vying to profit from the Christmas shopping season, which officially kicks off this weekend. Photo: AP
JOHANNESBURG – Struggling South African retailers will be vying to profit from the Christmas shopping season, which officially kicks off this weekend with today's Black Friday frenzy.

Retail sales have remained widely under pressure throughout the year as a result of low consumer spending on the back of rising unemployment and low incomes.

Data from Statistics South Africa (StatsSA) show that retail trade sales have been muted due to low economic growth, forecast to be 0.5 percent this year. Retail sales increased by only 1.1 percent in the third quarter this year compared with the same period last year.

On a month-to-month basis, the highest retail trade sales increase was a 2.4 percent jump achieved in April and in June, with the lowest increase of 0.2 percent recorded in March.

Retail analyst at Old Mutual Equities Meryl Pick said economic conditions were still stacked against consumers, while retailers were also battling for a shrinking market share.

Pick said they had noticed in the past that Black Friday had eaten into consumer Christmas spend, changing fourth quarter spending patterns.

“The consumer is still under pressure. Consumer confidence is low and retail sales remain at depressed levels. Retailers are fighting for market share in a stagnant growth environment. Heavy discounting has been common and we see the impact on margins and depressed sales price inflation,” Pick said.

“Other retailers appear to be using the opportunity to clear excess slow-moving stock, or are buying in merchandise in bulk at lower prices to appease consumer pressure while ensuring the sale promotion doesn't dent margins.

“Ultimately, there is little upside for South African retailers. However, consumers have come to expect it so they participate because not doing so is bad for their brands at this point.”

The recent RMB/BER business confidence index released on Wednesday showed that retailers’ confidence jumped from 17 to 30 despite generally weak sales volumes.

The upcoming Black Friday, Cyber Monday and Christmas shopping campaigns stirred some optimism among retailers. But except for durable consumer goods, retail sales generally remained quite weak.

The internal Black Friday Global data for 2018 in South Africa showed a more than 1 900 percent increase in sales compared to an ordinary day.

For instance, FNB debit and credit card holders made over R2.5 billion worth of purchases during last year's Black Friday.

A survey by PwC shows that South African consumers plan on spending 36 percent more this year compared to last year.

Although South Africa's economy dodged a recession in the second quarter, data shows that this year's gross domestic product is heading towards zero growth.

But Black Friday and Christmas sales may slightly change the fourth quarter outcome. There might also be some reprieve for consumers after the consumer price inflation slowed to 3.7 percent in October, the lowest rate since February 2011.

The slowdown in headline CPI came against a backdrop of further deceleration in food inflation to 3.5percent year on year as prices were broadly stable for major items within the food inflation basket.

The main upside risk for food price inflation in 2020 is the weather, as the outlook suggests that South Africa could receive below-normal rainfall from the end of January 2020.

BUSINESS REPORT