LISTEN: Valentines volumes propp up retail sales in February
CAPE TOWN – Retail trade sales lifted by 2 percent in February, following January’s 1.3 year-on-year increase.
Notable outperformers were sales by “other” retailers, such as online sales, which increased by 8.9 percent year on year, followed by household furniture/equipment and clothing and footwear, which rose by 4.7 percent year on year and 1.5 percent year on year respectively.
Investec economist Lara Hodes said subdued consumer confidence evinced by the FNB/BER’s consumer confidence index (CCI) which dropped to -9 in the first quarter of this year, from -7 in the previous quarter, coupled with slowing nominal wage growth and dire levels of unemployment hindered robust consumption expenditure growth.
FNB senior economist Siphamandla Mkhwanazi on Wednesday ascribed the spike February in the “other” category to the generally increasing online sales in the country, as well as demand related to Valentine’s Day, including sales of jewellery and watches.
By contrast, pharmaceuticals and retailers of hardware and paint saw their sales volumes decline by 2 percent and 0.5 percent year on year, respectively, in January.
“The seasonally adjusted volumes, however, declined by 0.4 percent month on month, from an increase of 0.5 percent month on month in January – revised down from 0.9 percent. Retail sales inflation remained low, averaging just 2.9 percent year on year in February.
“We note that retail sales inflation has not broken above the 3 percent mark in over 30 months. This depicts a muted consumer demand environment, and is consistent with rising unemployment, slowing income growth and depressed consumer sentiment,” said Mkhwanazi.
Mkhwanazi said a spike in the March volume sales should be expected to reflect a wave of panic buying by consumers ahead of the national lockdown. “Over the medium term, however, we expect consumer spending to take a significant knock due to: lockdown restrictions; loss of income because of the pandemic; and heightened uncertainty, which could result in an increase in precautionary savings by high-income households.”
Mkhwanazi said this view was supported by the country’s mobility data, which showed that foot traffic to grocery shops and pharmacies spiked in anticipation of lockdown restrictions. “During the lockdown period, data shows a collapse in volume of these trips, which we read as an indication of muted shopping activity. This is further supported by internal card transactions data, which shows a spike in spending in the days before lockdown, and a sharp decline afterwards.
“As such, we expect a decline in household spending in the medium to longer term, particularly on ‘non-essential’ goods. Nevertheless, there are some factors that could lend support to the consumer during this time. These include aggressively lower interest rates, rising deflationary pressures (including very low oil prices and rental inflation), as well as marginally lower income taxes – which should somewhat boost discretionary income,” said Mkhwanazi.
A breakdown of December’s retail sales performance reveals that five of the seven retail sub-categories rose on a year-on-year basis, according to Hodes. “The all other retailers’ category, followed by the general dealers segment were the largest positive contributors to the headline outcome. These categories with a combined weighting of 54.5 percent in the retail basket, added 1.7 percent to the 2 percent year-on-year headline reading.
Hodes highlighted that February’s data did not take into account the dire effects of the stringent lockdown containment measures, implemented at the end of March, to mitigate the spread of the Covid-19 pandemic.
“The effect on the economy thus far has been devastating, with a gross domestic production (GDP) contraction of up to 10 to 15 percent year on year for 2020 now possible.
“Consumer buying patterns have shifted with a surge in online shopping observed, as many consumers are apprehensive about leaving their homes during the pandemic,” she said.
Retailers unable to sell non-essential goods during the lockdown, have suffered with declining foot traffic in stores.