Filed under: Retail
After five years of bumper Christmas sales, analysts expected a subdued season and warned that it would get worse early next year as consumers would feel the effects of recent interest rate hikes.
December 18, 2007
By Tom Robbins Cape Town
After five years of bumper Christmas sales, analysts expected a subdued season and warned that it would get worse early next year as consumers would feel the effects of recent interest rate hikes.
But it is not all doom and gloom. The expectation is that despite interest rates that have risen for longer than expected, the country has not been derailed from its longer-term consumer growth story.
In general the most expensive products categories were expected to be the hardest hit over the festive season but the traditionally stable categories of food and alcohol would prevent a decline in overall retail sales
Barbara Price-Hughes, a research analyst at BoE Private Clients, expected the December sales growth trend to be halted this year. Price-Hughes thought real sales would be roughly similar to those of last year, this after taking inflation into account.
According to Statistics SA, furniture sales have already fallen into negative territory but Price-Hughes did not expect clothing sales to fall, though it was likely that sales growth in this category would continue to moderate.
But Price-Hughes said food sales to the bottom end of the market continued to be strong, as evidenced by the fact that food processors were battling to meet demand.
Abri du Plessis, chief investment officer at Gryphon Asset Management, expected food and alcohol sales to be the star performers, as they benefited from continuing growth in the middle class.
Moreover, Du Plessis believed lower debt levels at the bottom end of the market would help spending on these items.
He expected this to result in real growth for retailers such as Spar, Pick n Pay and Shoprite, but at a lower rate than last year.
Du Plessis expected roughly flat real growth in spending on clothing as consumer spending slowed on discretionary items. But he expected volume sales of popular electronics, such as flat screen TVs, to rise thanks to continuing price cuts, helped by the stronger rand. But Du Plessis said because of this manufacturing deflation, rand value sales would be under pressure.
Filed under: Retail
When Woolworths fell out of the JSE’s blue chip Top40 index last week, the move reflected a cyclical shift in the economy.
December 18, 2007
When Woolworths fell out of the JSE’s blue chip Top40 index last week, the move reflected a cyclical shift in the economy.
The retailer lost its ranking as number 36 on the Top40, at the JSE’s quarterly review of the index. It was replaced by construction firm Aveng, with a market cap of R24.2 billion, a clear indication of where growth is taking place in the country’s economy.
The construction sector is booming, while retailers have been hit by a four percentage point hike interest rates in the past 18 months, which has capped consumer spending.
Woolworths, which joined the list in March, follows retailer Pick n Pay out.
The latter fell out of the index in July and was replaced by newly listed paper producer Mondi, which together with Mondi plc has a market cap of R31.4 billion.
A third retailer holding on to its place near the bottom of the index is Shoprite, number 38 on the list, with market cap of nearly R23 billion.
But whatever the cycle and despite structural changes to the economy, the Top40, which is made up of largest and most liquid companies, is dominated by resources.
Anglo American, with a market capitalisation of R616.4 billion at the time of the quarterly review of the index last week, tops the list, while BHP Billiton is second, with a market cap of R557.7 billion.
Louis Stassen, the chief investment officer of Coronation Fund Managers, said their combined contribution to the 25 percent return on the Top40 shares was 61 percent.
The two companies have been top of the JSE totem pole since the local bourse restructured the index in 2002, in a joint venture with the FTSE as its official index partner.
The two giant mining firms represent nearly 27 percent of the R4.4 trillion combined capitalisation of the Top40 companies.
The dominance of resource stocks has been shored up as commodity prices reached record levels in the past two years, after steady rises going back to 2003.
However, high prices have not encouraged mines to increase production. This is reflected in the contribution of mining to gross domestic product (GDP).
The contribution of mining to GDP has fallen from 20.6 percent in 1980 to 7.7 percent last year and 7.1 percent in the third quarter.
Chris Hart, an economist at Investment Solutions, said that changes in recent years included an increased presence of the financial sector after the listings of Old Mutual and Sanlam in July 1999 and November 1998, respectively, and the rising importance of telecoms and media companies.
Old Mutual is the second-biggest financial company in the index, with a market cap of R127 billion, after Standard Bank with R149.3 billion.
Innovation and the rise of cellular telephony has also left its mark on the index.
And the rise of media companies has put Naspers, with a market cap of R67.3 billion, in number 19.
