Retailers are expected to profit from strong volume growth this Christmas season with growth in sales volumes for the period October to December expected to double from 2.7% last year to 5.0% this year. This is according to this year's Christmas Retail Survey sponsored by audit and business advisory firm Ernst & Young and conducted by the Bureau for Economic Research (BER).

However, the survey indicates that turnover is only likely to increase between 5% and 6% compared to 13.4% last year, due to much lower price increases and also some decreases. "The lower sales growth could hurt the bottom lines of retailers, as costs such as wages, salaries and rental expenses have increased considerably compared to last year," says Jaco van der Walt, Partner in charge of Retail & Consumer Products (R&CP) at Ernst & Young.

Only 25% of the 540 retailers surveyed this year expect Christmas sales to be higher compared to the 40% that expected higher sales last year.

According to this year's survey, sales of all the major categories namely furniture and appliances, clothing and footwear and food and beverages are expected to increase at a lower rate this year compared to last year.

"Retailers marketing goods to the top-end of the market are experiencing a roaring trade," says van der Walt. "Lower personal tax rates, lower interest rates and higher consumer confidence have all boosted volumes.

Furthermore, the strong Rand and resultant decline in the price of imported goods and lower inflation have also stimulated volumes," he adds.

The lower income mass market has benefited from an increase uptake of social grants (i.e. civil pensions and child support grants) and real wage increases. "However, recent job shedding and accompanying increased uncertainty led to a sharp fall in this group's consumer confidence," says van der Walt.

"The lower confidence levels together with stricter credit rules, is hurting sales to the mass market," says van der Walt. "Retailers focusing on the mass market are having a difficult time, as they have to make do with below par volume growth and limited pricing power."

With regard to the international market, van der Walt comments that expected retail sales in the US, are set to increase at 5.2% compared to 3.4% the previous year. "The economic turnaround is expected to give retailers the boost they sorely need to make this holiday season greener than last year's."

The US economy has been bolstered by increases in disposable income, reduction in federal income tax rates and low interest rates. However, an unemployment rate of six percent and deflationary trends in major holiday merchandise categories such as toys, apparel and consumer electronics, could moderate holiday sales somewhat.

"Retailers in the US have remained cautious and inventories are lean for the holiday season, thus reducing the risk of substantial markdowns," says van der Walt. "High-end consumers will be more inclined to spend on luxury items and this will be a positive for high-end speciality stores and luxury goods companies. Furthermore, value retailers (discounters, large mass merchandisers, warehouse clubs and dollar stores) will fare well as the majority of consumers will seek bargains and value for their dollar."

Like last year, the BER included a special question "Compared to last year, do you expect Christmas sales this year to be lower, the same or higher?" in this survey to establish the prospects for Christmas sales. The survey was conducted between 27 October and 18 November 2002 and covered 540 retailers nationwide.