What’s in the bag? Shoppers pass judgement on South Africa Inc
You can learn a great deal by spending some time at one of the country’s major shopping malls. A close analysis of consumer behaviour will quickly betray a misfire in the country’s economic engine. And it’s just such a problem that the latest figures from
Is the current consumer slowdown a function of the global economic crisis, or does the root of the problem lie at home? Kevin Lings, economist at StanLib, believes the link between South Africa and the rest of the world is obvious. He says the country is under enormous pressure at the moment, reserving special mention for the manufacturing sector and export activity. And he confirms that most measures of consumer activity point to a recession. “Total SA consumer spending (as disclosed by the Reserve Bank) declined in both Q3 2008 and Q4 2008 on the back of a decline in real disposable income,” says Lings. This comes as no surprise as local consumers tightened their belts through 500 basis points of interest rate hikes in the two years, starting June 2006. Will Q1 2009 confirm the trend?
Uncertainty casts the deciding vote
The battle lines for consumer disposable income are drawn. On the one side we have good forces in the form of the interest rate cuts made since December 2008. On the other we have the dark forces comprising unemployment and global recession. Their secret weapon is uncertainty. Consumers are unsure whether they’ll hold on to their jobs and have no idea how long the economic downturn will last. The natural defence to this uncertainty is for consumers to delay the so-called ‘big-ticket’ purchase.
This trend is best illustrated using South Africa’s listed retail companies. Share price movements suggest a definite shift to low cost providers. People are moving their grocery purchases from Woolworths Food to the perceived lower-cost outlets Shoprite Checkers, Spar and Pick ‘n Pay. These retailers have been among the most resilient on the market in recent months because consumers have to fulfil their basic needs for goods and services. Clothing retailers confirm the phenomenon. Some shoppers are shunning Foschini and Truworths and heading to the less pricey offerings at the likes of Mr Price. Companies involved in furniture and appliance sales have had a much rougher ride. Steinhoff and JD Group have seen their shares sold off heavily in recent months around the concerns mentioned in the preceding paragraphs.
The crisis seems to be teaching South African consumers a valuable lesson in money management. During the boom times we shunned the so-called ‘poor mans’ pursuits’ of budgeting and shopping around for the best buy. Don’t waste too much time in adding these recession-survival tools to your repertoire, because it’s unlikely this trend will reverse in the short-term.
Good news in the tide of negativity
We can take some solace in that South Africa isn’t facing the perils of job cuts, high levels of debt and recessionary pressures on its own. Before you rush for the exit door at Oliver Tambo International airport we’d best warn that times are tough around the world! The US and UK are already so deep in recession that their concerns have shifted from fighting the slowdown to staving off deflation. The US Bureau of Labour Statistics says 3.3m payroll positions have evaporated in the five months to March 2009! In the UK more than a quarter of a million people were made redundant in the three months to January 2009. Many of these job losses are in the banking and financial sector where experts suggest employment won’t recover to 2007/2008 levels – even after the economic crisis passes. Against this backdrop recent predictions of a massive drop in global trade are hardly out of place.
Given the dire situation in favoured emigration destinations we were surprised by the results of a recent TNS Research Surveys report. They found that while 60% of the country’s citizens were positive about prospects in South Africa, as many as 11% are seriously contemplating emigration. This percentage is significantly higher for university students and people aged 24 or less. Fortunately there’s a smattering of good news making a stand against the tide of negativity. One such story is the reduction in outstanding credit card balances. Lings says the growth in credit card debt is at 1% year-on-year to February 2009 compared to 44% in February 2007. While nobody is happy about declining retail sales, this statistic supports that more of the sales are concluded on a cash rather than credit basis.
And the retail sector downturn won’t go unnoticed by the Reserve Bank governor either. When the Monetary Policy Committee meets at the end of this month Tito Mboweni will probably lobby aggressively for further interest rate relief. “StanLib expects a reduction of a further 100bps in rates in April,” says Lings. This cut isn’t going to cure the country’s economic woes; but it will create some welcome slack in homeowners’ budgets.
Editor’s thoughts: Everyone is talking about the decline in retail sales in the first quarter of 2009. But there’s still plenty of spending taking place. Have you cut your budget significantly as fears of recession and redundancy take hold? Add your comments below, or send them to [email protected]
