Middle- to high-income earners keep speciality retailers afloat

Published Jul 2, 2014

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Despite low consumer confidence in South Africa, specialist retailers of leisure and personal goods have continued to grow thanks to rising demand from high-income earners and price increases, according to an annual report by global market research organisation Euromonitor International.

The report said that retailers trading in jewellery and watches, bags and luggage, sportswear and pet accessories experienced 10 percent revenue growth in current value terms last year, reaching sales of $4.48billion (about R45bn).

“Overall, 2013 was a good year for leisure and personal goods specialist retailers in South Africa. Despite lower purchasing power, the channel enjoyed rising demand from middle- to high-income consumers,” the report stated.

Euromonitor said the sluggish economic climate had not hindered the performance of leisure and personal goods retailers in South Africa. The report estimated that sales in this sector would reach $5.48bn in 2018, with retailers of handbags and suitcases experiencing even more robust growth.

Stores selling media products would lead the pack.

It added that the bag and luggage retail sector was seeing more growth as a result of an increase in the number of international brands entering South Africa, resulting in more stores opening. “This channel was driven by growing demand for sport and travel brands. The sluggish economic climate saw a move to domestic travel, negatively impacting international travel. This led to consumer demand for sport and travel bags instead of luggage,” it said.

Chris Gilmour, a retail analyst at Absa Investment, said he found it interesting that it was not only stand-alone stores that were participating in specialist retailing. “Walking through a typical large Edgars store, one can’t help but notice a high degree of specialist stores within the store. For example, you will find extensive luggage and sports bag displays.”

Jewellery and watches are considered a non-essential product in South Africa, but enjoy demand from middle- to high-income earners. “This small group moved to luxury items, thus enabling jewellers and watch specialists to perform well in 2013.”

The increasing penetration of international costume jewellery retailing brands, such as Lovisa and Mimco, has also contributed to this category’s growth. Gilmour added that costume jewellery was also popular at large retailers.

The report said although real jewellery and watches dominated sales value due to their higher average unit prices, costume jewellery was the main volume growth driver among jewellery retailers. Gilmour believes jewellery will continue to do well, as the gap between the rich and poor grows.

“Upper end jewellers such as Cartier should do especially well, reflecting the fact that the rich are growing noticeably richer and their consumption is growing more conspicuous.”

Sportswear retailers also enjoyed some growth despite relatively few consumers taking part in sports activity due to the disparity between social classes. The report added that high-income earners remained the only ones participating in regular physical activities.

“The fad of going to the gym was boosted by the international chains such as Virgin Active in urban areas, targeting middle- to high-income consumers,” Euromonitor said.

Sportswear sales have also been boosted by the fashionable image of leading brands such as Adidas, Puma and Nike.

Gilmour believed that South Africa was fortunate to have a healthy mixture of playing and spectating sports goods.

“I would think that the proportion of consumers who buy sports goods to actually use in some type of sporting activity must be around 90 percent. This is in stark contrast to the UK, where many sports stores are little more than purveyors of supporters’ scarves and replica shirts for football teams and so forth,” he said.

Other retailers that were looked at included stationers and office supply retailers, which recorded growth of 8.5 percent last year, driven by demand from business executives and scholars. However, Gilmour thought the increase in technology use in the form of tablets would make pens, pencils and paper redundant.

“Stationers still have some sort of appeal within the genuine office category, but as companies move more and more to paperless offices, I suspect they will have had their day,” he said.

Pet shops and superstores recorded growth of 10.9 percent in current value terms last year. “Many pet owners continued to prefer purchasing specialist pet product brands from pet shops and superstores due to the greater brand variety of pet products and advice available to them,” Euromonitor said.

It said despite slow economic growth, the rising cost of living had led consumers to become more savvy in terms of their spending.

The report said retailers were also able to increase the number of stores, despite the drive to expand internet retail.

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