CGI: Christmas sales 2008 expectations

From 20.8% in 2002, Christmas sales (November & December) as a share of total annual retail sales rose to 21.4% in 2005 before declining slightly last year to 21.2%.

In 2002, the prime interest rate climbed from 13% at the beginning of the year to reach 17% by year-end, with inflation averaging 12.7% in the final two months of the year. Consequently, the real improvement in Christmas sales was limited to just above 1%. Since then, as inflation and interest rates have fallen, the performance of real retail sales has averaged between 8.2% and 10.2% - exceptional performances by any standards.

Performance of retail sales for the year-to-date reveals a 14.4% rise in nominal terms and 7.9% in real terms, although July and August have been the worst performing months so far in the aftermath of the introduction of the National Credit Act. Since then, interest rates have been hiked twice and if comments by Governor Mboweni are any yardstick, there is certainly a strong chance that another 50 basis points increase will eventuate.

Our expectation is thus for nominal sales growth in November/December of 10.5%, almost R8.9 billion more than in 2006. In fact, this would be the smallest increase after 2001s 8.7% increase, and represents a sharp slowdown from the latest monthly growth figures of 12.7% in July/August. This would imply that sales for the final two months of the year would represent 20.7% of annual sales, on a par with levels seen in 2002 and 2003. Taken together with our inflation forecast of 7.5% at the time, the real growth in Christmas retail sales is thus forecast at 3%.

Consumers have experienced a significant improvement in buying power over the past three years. Despite wage settlements being generally above inflation, price increases have eaten into the real improvement in incomes while debt servicing costs as a share of disposable income have breached 10% for the first time since 1999.

At this time of the year, there is a tendency for a greater prevalence of credit sales and consumers are thus warned to be mindful of over-extending themselves. Our concerns relate to consumers being swamped by repayment obligations come the new year when other essential payments become due, as well as potential non-payment by buyers to suppliers if sales expectations disappoint and inventories remain unsold.

Table 1 - Retail sales analysis

Source: Stats SA; CGIC analysis & forecast

Luke Doig, Senior Economist at Credit Guarantee Insurance Corporation