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Traditional January clothing sales continued for longer this year, as consumers cut back on festive season spending more than retailers expected, according to retail executives and analysts.

 March 26, 2008

By Tom Robbins

Cape Town - Traditional January clothing sales continued for longer this year, as consumers cut back on festive season spending more than retailers expected, according to retail executives and analysts.

Even in good years retailers budget for a level of markdowns, as some fashion lines do not match consumer tastes. But this year markdowns at many retailers continued well into February as sales came under pressure across the board.

Woolworths chief executive Simon Susman said last week that markdowns were higher after disappointing summer sales. “As most businesses will now be doing, we are adjusting our buying budgets in line with the current and projected consumer spending patterns.”

Foschini chief executive Doug Murray said markdowns this year had been a “bit” more significant than expected, after goods on sale did not clear at the same rate as previously. But the company had taken a more cautious approach to the festive season with regard to stock holding levels, as it had expected a tough period, he said.

Barbara Price-Hughes, a research analyst at BoE Private Clients, said Woolworths’ pre-Christmas markdowns had been the most visible in the sector, but this “strategic” move made sense. After the company was caught holding stock by a sharp slowdown in September, it realised there would be no short-term recovery and acted quickly.

But Price-Hughes said that while markdowns were more significant than in recent years, there appeared to be no signs that big retail chains were selling stock below cost, which would hit profits hard.

Abri du Plessis, the chief investment officer at Gryphon Asset Management, said that while the level of markdowns was hard to quantify, it was fair to say they were “worse than over the past two years … Unfortunately, we are not at the bottom yet, as the full effect of the interest rate hike late last year is still to be felt by consumers.”

Since last year’s hike, the Reserve Bank has kept interest rates on hold. But food and fuel price rises have continued to heat inflation, putting pressure on the monetary policy committee (MPC) to further raise rates. The MPC will make its next decision early next month.