e-spaces

By Florence de Vries

A recession can show which retailers have the correct strategy, and those giving value for money are now the victors.

Speaking on the retail sector’s performance this year, Michael van Wyk, the head of retail at Deloitte, said at the weekend that retailers offering value-for-money products would stand out above the rest.

Van Wyk said this could especially be seen where customers had started buying down by purchasing generic brands of goods and not necessarily trademarked goods.

“People strive to buy branded goods, but if customers associate your generic brand with that of a reliable retailer that offers good service, they will continue to buy that product,” he said.

This is already evident in the rising sales of no-name brands at some of the major retailers.

According to Pick n Pay spokeswoman Tamra Veley, Private Label is the biggest brand in Pick n Pay as sales of the in-house brand have outperformed total store sales consistently over the years.

“This can be attributed to the fact that Pick n Pay brands offer guaranteed quality at a better price,” she said.

Shoprite’s private labels represent just more than 10 percent of products in its groceries and perishables categories. “This also puts us in a position to negotiate lower prices with suppliers of branded products,” a Shoprite spokesperson said.

Van Wyk believes people can no longer necessarily afford “nice-to-haves” and retailers must have this trend entrenched in their operations to succeed.

A study on global retailers by Deloitte earlier this year said retailers would continue to concentrate on market share but it would become harder in a recessionary environment.
“Consumers are intensely value-oriented, even more so than in the past. We are seeing this already with consumers shifting to more price-focused retailers,” the study said.

Even so, retail sales for the first half show a marked slowdown in consumer spending, which is likely due to job losses and stringent lending rates. Durable goods sales fell substantially while food and beverages remained the biggest contributor to retail sales.

Van Wyk believes that the downward trend of retail sales is starting to slow. Chris Gilmour, an analyst from Absa Asset Management, agrees.

Retail trade sales at constant prices for June reflected a decrease of 6.7 percent compared with the previous year.

“There is bound to be a better performance in July, although it is not likely to be profound,” Gilmour said. “Salary increases between 8 percent and 10 percent and lower inflation catalysed the last lull in consumer spending at the start of this decade.”

He added that the South African retail sector was slowly pulling out of the recession.

Looking ahead to Christmas sales, Gilmour said they were likely to be better than the previous year on the back of the interest rate cuts this year.

“About 60 percent of the economy relies on consumer spending, so if Christmas sales do not improve, we have a problem.”