Johannesburg - As Stuttafords, the country’s oldest luxury brand, prepares to close down next month, retailers are expected to come under pressure with South Africa’s technical recession and rising unemployment.
The clothing sector is under severe pressure - as clothing is classified as “discretionary spend” from a consumer’s budgetary perspective, meaning that when people are short of cash, they cut back in such areas, Stefan Salzer, a partner and managing director of Boston Consulting Group South Africa, said yesterday.
Salzer also said the entry of international players such as H&M, Zara, and Cotton On had put more pressure on local players Mr Price, Truworths, Foschini and Edcon.
Salzer believed that the retail industry as a whole was under pressure from the recession.
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“Market pressures will remain high, international entrants will stay around - this is the 'new normal' for which the retailers need to plan.
"This puts pressure on achievable sales prices - to survive in such an environment, retailers need to be aware of this and offer great value (quality for price) to customers,” Salzer said.
He also said retailers had to reduce all extra costs from their operations to remain in a healthy profitability state.
Currency swings
Retailers needed to understand their customer segments in detail to design their product range into the right “sweetspot” between low prices and high quality, he added.
“Given the fluctuation of the rand to the dollar and other currencies, they need to plan for currency swings when sourcing product from the Far East,” he said.
36One Asset Management equity analyst Daniel Isaacs agreed, saying that companies needed to try to make sure strained consumers could still afford to, and want to purchase their merchandise.
“The affordability comes down to the price and credit available," Isaacs said.
"Pricing will be easier, considering the rand is stronger this year compared with last year, but credit is still difficult with the change in affordability requirements,” he said.
“The desire to purchase comes down to having more fashionable merchandise than your competitors, which is becoming more difficult with international entrants like Cotton On and H&M,” he said.
The 159-year-old family-owned Stuttafords chain will be closing all its stores next month after going into business rescue.
The company has been reportedly described as South Africa’s Kodak, and lost relevance and market share to new entrants and online-shopping offerings.
South Africa entered a technical recession last month when gross domestic product contracted 0.7percent in the first quarter following a 0.3percent contraction in the first quarter of last year.
The technical recession comes with unemployment at 27.7percent, a 14-year high.
It was also reported that Rand Merchant Bank and the Bureau for Economic Research indicated that business confidence in the second quarter of this year had slumped to levels last seen in 2009.
It reported that the retail sector’s confidence shed 10 index points to 35 points, while sentiment among wholesalers had deteriorated 7 points to 49 points, pulled down by weak consumer spending in the second quarter of the year.