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Sales of clothing, a discretionary category, are showing some resilience in the downturn, according to Statistics SA figures, but analysts remain bearish.

July 24, 2008

By Tom Robbins

Cape Town – Sales of clothing, a discretionary category, are showing some resilience in the downturn, according to Statistics SA figures, but analysts remain bearish.

Stats SA said sales of clothing and footwear were up 13.8 percent in the three months to May, compared with the same period last year and against a total rise in retail sales of only 11 percent.

Clothing sales are usually the second-hardest hit category – after the more expensive category of furniture and appliances – when consumers start to feel the pinch. As expected, furniture and appliance sales have been falling since June last year and were down 12 percent in the three months to May.

However, clothing needs to be replaced more regularly, particularly as children outgrow their outfits.

But Evan Walker, a portfolio manager at RMB Asset Management, said yesterday that clothing sales at listed companies were poor. Walker expected the sector “to get worse before it gets better”.

Both Foschini and Woolworths said in their most recent announcements that sales growth was negative after taking internal inflation into account.

By contrast, Mr Price said it had produced real clothing growth and Truworths suggested the same.

Walker said his expectations were that retailers that could cut costs would report flat profit growth next year and a sector-wide recovery would occur only in 2010.

He said clothing inflation was still below overall inflation of 10.9 percent, but was now at about 5 percent to 6 percent and expected to rise.

According to figures from Stats SA, this suggests there is still clothing volume growth. Stats SA figures include non-listed retailers.

But according to figures from the Retailer Liaison Committee compiled by Nielsen, listed retailers’ clothing and footwear sales growth was more muted. May sales were up 9.6 percent, retreating from 10.4 percent in April.

Roy Chapman, the head of financials and industrials at Sanlam Investment Management, said there might be volume growth in clothing sales at major retail chains due to new space. But volume growth at stores open longer than a year was negative at most listed retailers, he said. Analysts consider like-for-like sales growth to be the best indicator of underlying sales performance.

Chapman said it was possible that the new stores opened by retail chains were taking market share from independent and informal retailers.

If this was the case, it might suggest there was little change in the overall figure. These new stores made retail brands more accessible to consumers and generally offered better shopping experiences.

Sales from retailers not registered for value-added tax are excluded from the statistics agency’s sampling.