e-spaces

Confidence among retailers had plunged to its lowest level in five years, signalling the beginning of a consumer recession, the Bureau for Economic Research (BER) said yesterday.

By Tom Robbins

Cape Town - Confidence among retailers had plunged to its lowest level in five years, signalling the beginning of a consumer recession, the Bureau for Economic Research (BER) said yesterday.

BER economist Linette Ellis said: “In the past, such a dramatic turnaround and low level of retailer confidence typically signalled the beginning of a recession in this sector.”

A recession is defined as two consecutive quarters of falling sales volumes.

The BER’s retailer confidence index tumbled from a record 91 points in the second quarter of last year to 52 in the first quarter of this year.

The latest survey suggested that retail sales volumes had contracted further year on year during the quarter, after Statistics SA reported that they fell 0.2 percent in November and 0.5 percent in December.

Moreover, even food and clothing sales volumes had fallen in the first quarter, according to the survey of 500 retailers by the BER.

But Quinton Ivan, a portfolio manager at Coronation Fund Managers, said the biggest players in the food
market – Shoprite, Pick n Pay and Spar – were all still showing real volume growth.

Supermarket groups were defensive firms in a downturn, which was why these counters attracted a higher market rating than furniture and clothing retailers, Ivan said. “It is very rare, if at all, that food volume sales turn
negative in a downturn, and that is why when you invest in supermarkets, you pay for that certainty.”Abri du Plessis, Gryphon Asset Management’s chief investment officer, said that while volume sales had fallen at Woolworths food stores open longer than a year, he would be “surprised” if overall food volumes were down.

But volumes of clothing, a semi-durable category, “could” be down.

Sales of bigger-ticket items, such as furniture and vehicles, have been falling since the introduction of the stricter lending criteria of the National Credit Act in June.

But the BER survey on food retailers suggests that even the resilient bottom end of the market is being hammered.

This segment, with lower debt levels than the middle market, is more sensitive to fuel and food inflation than higher interest rates.

Du Plessis said it was possible that the consumer economy would enter a recession, but this was unlikely to lead to an overall recession, as the fixed investment and construction sectors were still pulling growth up.

Last week the Rand Merchant Bank/BER business confidence index said general business confidence had dropped by the most in 24 years. The index lost 19 points to 48 in the first quarter, after rising costs undermined company profits and political uncertainty increased, Bloomberg reported.

The First National Bank/BER consumer confidence index unexpectedly increased in the last quarter of last year, following two quarters of decline.