|
Blog : 20 November 2016 (Retail trade sales unpacked)
|
Related Topics |
|
In today's blog we take a look at South Africas retail trade sales and what type of dealers makes up retail sales and how retailers have been performing in recent years. With consumers under pressure and retailers share prices on the JSE being under the pump we take a look at the sector.
Note all data from Statistics South Africa's retail trade sales publication |
So which dealer type has biggest pie of the pie?
Note for this pie chart the total value of retail sales from 2008 to September 2016 was used to calculate the contribution of the various retailer types.
From the pie chart it is clear that general dealers rules the roost in South Africa. General dealers are seen as dealers that sell a wide variety of items and is not focused on just one specific item such as food or clothing or hardware for example. Retailers such as Massmart (MSM) and Shoprite (SHP) would fit into this category.
Second biggest dealership type is the clothing and footwear dealerships. Readers might be surprised that food and beverages is not the second biggest. Part of the reason it is not the biggest or even in the top three is due to the fact that a large number of general dealers sell food too, but they are classified as a general dealer as their food component might not make up a significant proportion of their total sales. Whereas clothing retailers are generally pretty specific in what they sell and specialize in clothing. People do not go to YDE or Truworths to go buy milk for example.
From the pie chart it is clear that general dealers rules the roost in South Africa. General dealers are seen as dealers that sell a wide variety of items and is not focused on just one specific item such as food or clothing or hardware for example. Retailers such as Massmart (MSM) and Shoprite (SHP) would fit into this category.
Second biggest dealership type is the clothing and footwear dealerships. Readers might be surprised that food and beverages is not the second biggest. Part of the reason it is not the biggest or even in the top three is due to the fact that a large number of general dealers sell food too, but they are classified as a general dealer as their food component might not make up a significant proportion of their total sales. Whereas clothing retailers are generally pretty specific in what they sell and specialize in clothing. People do not go to YDE or Truworths to go buy milk for example.
Its also pretty clear that retail in pharmaceuticals and medical goods are pretty big business, with it making up over 8% of retail spending. This would be the space that Clicks and Dischem is operating in. The market Steinhoff is largely known for (household equipment and furnishings) brings in around 5.4% of retail sales. So while at the contribution of various retailers to total retail sales gives us an idea of structure of South Africa's retail industry it does not provide us with any information on the performance of the retail sector over time. The next graphic will look at the year on year growth rates in retail sales (both seasonally adjusted and unadjusted)
From the graphic above it is clear that retail trade sales has not gained any momentum in the last few years with year on year growth rates barely touching 6% (which is government's target for economic growth). If retail sales cant grow by 6% a year, the economy as a whole will struggle to meet government's over ambitious growth target of 6%. With interest rates at the highest levels it been at in years, and consumer debt increasing we cannot see retail sales growing significantly in the near future. And this raises the question as to whether the Reserve Bank went to far with their interest rate increase cycle. As they increased interest rates a few times when inflation rate increases were not due to consumer spending and demand pushing up inflation (demand-pull inflation), but inflation rather going up due to cost-push factors, such as the drought pushing up food prices in South Africa. Read or cost-push, demand pull inflation blog here.
And the higher interest rates reduces available money for consumers to spend, stunting growth in sectors such as the retail trade sector. So the SARB's monetary policy setting has a signifcant effect on other sectors and the growth in the economy, but whether it is effective in controlling inflation is debatable as a lot of inflation is caused by factors outside consumers control, such as sudden spikes in oil prices, droughts, supply shortages etc.
And the higher interest rates reduces available money for consumers to spend, stunting growth in sectors such as the retail trade sector. So the SARB's monetary policy setting has a signifcant effect on other sectors and the growth in the economy, but whether it is effective in controlling inflation is debatable as a lot of inflation is caused by factors outside consumers control, such as sudden spikes in oil prices, droughts, supply shortages etc.
Will we see the South African Reserve Bank (SARB) softening their stance on interest rates and take a more measured approach when it comes to interest rate settings. We are firmly of the view that SARB has increased interest rates in recent times more to protect the currency than to control inflation. But they cant publicly state this as their mandate is inflation targeting and not exchange rate stability/setting. So they use the excuse of "importing inflation" via weak exchange rate to raise rates to ward off importing inflation or second round inflationary effects, when in actual fact they raising interest rates to make South Africa's real interest rates more lucrative for foreign investors. Who will then invest here, and demand local currency, which in turn will strengthen the exchange rate and reduce chances of "importing inflation".
We do not believe the importing inflation problem is nearly as bad as SARB would have it's users believe. South Africa's largest import is oil, and the oil price has not been increasing at rapid rates, in fact in recent years it has come down significantly. We also mentioned recently that SARB's inflation forecasting does not look very accurate as with every MPC meeting they have large revisions in their inflation forecasts. Read the article on their poor forecasting here.
We foresee a interest rate cut sooner than most might be expecting. Soon SARB is gonna have no choice but to lower rates a bit as inflation settles within the 3% to 6% target, in order to assist struggling consumers and retailers. Sadly such interest rate decreases usually takes a fair amount of time to have an impact on consumers and the economy. The transmission mechanism as it is known is the way in which monetary policy changes filters through to consumers and the economy, and this takes a fair amount of time to take effect. Studies have shown it takes anything from 6months to 24months for policy changes to start having an effect. Thus if SARB cuts interest rates now, the economy will only start seeing the benefit at the earliest in around May 2017. Can South Africa afford for their economy to just limp along sideways for another two quarters, when growth is already set to average 0.5% this year?
It's time for SARB to help out consumers and our struggling retailers. Give South Afriac's consumers, retailers and economy a early Christmas present by cutting rates that should not have been increased in the first place.
We foresee a interest rate cut sooner than most might be expecting. Soon SARB is gonna have no choice but to lower rates a bit as inflation settles within the 3% to 6% target, in order to assist struggling consumers and retailers. Sadly such interest rate decreases usually takes a fair amount of time to have an impact on consumers and the economy. The transmission mechanism as it is known is the way in which monetary policy changes filters through to consumers and the economy, and this takes a fair amount of time to take effect. Studies have shown it takes anything from 6months to 24months for policy changes to start having an effect. Thus if SARB cuts interest rates now, the economy will only start seeing the benefit at the earliest in around May 2017. Can South Africa afford for their economy to just limp along sideways for another two quarters, when growth is already set to average 0.5% this year?
It's time for SARB to help out consumers and our struggling retailers. Give South Afriac's consumers, retailers and economy a early Christmas present by cutting rates that should not have been increased in the first place.
Related Topics