Retail sales remained firm in March, which was good news for economic growth, economists said this week.
However, not all retail categories are performing well, indicating that for some stores trading is still tough.
Earlier this week Statistics SA said that retail sales in March rose 5.1 percent year on year, down from 5.5 percent the month before. The growth in March was primarily due to gains in the household furniture, appliances and equipment category, which increased 11.8 percent following a 7.9 percent increase the month before. General dealers rose 8 percent and sakes of the pharmaceutical, medical goods, cosmetics and toiletries category rose 5.6 percent.
But retailers of food, beverages and tobacco registered a 6.8 percent decline in March, declining for the third consecutive month.
Johannes Khosa, an economist at Nedbank, said that firm retail sales figures were encouraging and bade well for first-quarter economic growth. However, overall domestic demand conditions were fragile, with credit growth very weak for this stage of the upswing.
The Efficient Group said in a research note that buoyant consumer demand, which was up 5.1 percent from 2.7 percent a year ago, was good news for economic growth and employment creation as this sector was exceptionally weak last year and the year before due to the financial crisis and the subsequent job losses.
A relatively stable exchange rate and low interest rates may enhance consumer demand and in return boost economic growth in 2011.
But there are factors weighing on consumers.
Khosa said that growth could be constrained by high unemployment, rising inflation, increased electricity tariffs and worries about the likelihood of earlier interest rate hikes, which would keep credit demand in check.
The Efficient Group said higher prices and high debt levels in the economy were weighing on consumer demand in general, while general price escalation reduced consumer’s ability to spend on products even further.
The performance in various retail categories is partly reflected in the recent results of big retail groups.
JD Group, which owns Joshua Doore and Hi-Fi Corporation, recently reported strong results for the six months to February, with sales at its furniture retail division up 18 percent.
But food retailers are still facing tough conditions. Pick n Pay chief executive Nick Badminton said in April that the past financial year had been “the toughest trading year in the group’s history” as it undertook significant steps to transform the business amid an “exceedingly difficult trading environment”.
Shoprite chief executive Whitey Basson said in February that the six months to December had been difficult for food retailers, because of low food inflation and growth in operating expenses, over which they had little control.
Spar said last week that it expected that the tough trading environment would continue for the remainder of its financial year. However, continuing lower interest rates and increasing levels of food inflation improved the outlook. - Business Report