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Clothing credit retailers, such as Truworths and Foschini, would endure the climate of slower growth in consumer spending better than credit furniture retailers, such as the JD Group, Ellerine and Lewis, analysts have predicted.

September 25, 2007 By Tom Robbins Cape Town – Clothing credit retailers, such as Truworths and Foschini, would endure the climate of slower growth in consumer spending better than credit furniture retailers, such as the JD Group, Ellerine and Lewis, analysts have predicted. This follows year-on-year furniture and electronic appliance sales falling for a second consecutive month in July as stricter lending criteria and high rates start to bite into spending on big-ticket items. Statistics SA said last week that sales of these durable goods, which included stoves and fridges, were down 4.8 percent to R2.25 billion in July, compared with the same month a year ago. But the decline was not as dramatic as in June, the month when the National Credit Act became effective, when sales fell as much as 12 percent to R2.03 billion. Clothing sales, which are less affected by changes in the interest rate cycle, continued to grow in July, albeit at a slower rate than previously. Investment analysts have also been advising clients that supermarket groups, such as Shoprite and Pick ‘n Pay, are likely to offer the most stable returns as food sales are the least affected by higher interest rates. Cadiz African Harvest portfolio manager Mark Ansley said furniture retailers had been overly cautious with regard to lending criteria after the implementation of the act, but had since started “normalising” lending criteria. Ansley said it was difficult to tell if Stats SA’s reported decline in furniture sales was primarily due to the act or higher interest rates, but the better performance of clothing sales suggested it had more to do with the credit act. Clothing retailers sell products on a revolving credit basis, with credit which existed before the June implementation of the credit act, but furniture retailers issue a new contract for each purchase. Of the big three credit furniture retailers, Lewis said previously it had not experienced a decline in sales during June and July. However, the retailer reported slowing sales growth. Lewis said sales growth had fallen to 7 percent in June. The retailer said that it recovered quickly from the effect of the credit act when, in July, a previous growth level of 11 percent was restored. Previously, Nedcor Securities retail analyst Syd Vianello said cost cutting was likely at multiple furniture chain owners Ellerine and the JD Group. Vianello said that these retailers faced the added pressure of banks taking consumer finance business from them. Vianello said that bottom end retailer Lewis was in a better position than Ellerine or the JD Group because it had very little exposure to the middle market, where debt pressures were the greatest.