November 27, 2003

By Max Gebhardt

Johannesburg - With 28 days until the start of the festive season, shopping malls around the country already have their decorations up, newspapers and television are beginning to fill up with adverts and retailers are getting ready to ring up the profits.

But it will not be as glorious a year as last year, according to the Ernst & Young and Bureau for Economic Research (BER) retail trends survey for the Christmas period.

"Any operational or marketing mistakes will show. Retailers cannot hide behind inflation," was how George Kershoff, a senior economist at the BER, summed up this year's outlook for retailers.

The high base set in 2002 on the back of rampant price increases meant there will be a lower growth rate in turnover this year, Kershoff said. And while a buoyant upper market might drive volume growth in some areas, there would be lower price increases as inflation had slowed. This would hurt the retailers, he pointed out.

An area of concern would be for retailers focused on the mass market, where job losses and a lack of access to credit has dented confidence.

"I agree volumes will do well, especially at the top end, but those focused on the mass market will do the same or perhaps even worse than last year," he said.  

The survey forecast total sales volumes for the period from October to December should grow at 5 percent against last year's 2.7 percent, but price increases would only show a marginal improvement of 0.3 percent compared with last year's 10.4 percent.

This meant retailers could expect turnover increases for Christmas of just 5.3 percent, according to Kershoff. The effects are clearly weighing on retailers, with only 25 percent of 540 retailers surveyed expecting sales to be higher this year. Last year, 40 percent of retailers expected to enjoy a bumper year.

"This Christmas will not be as strong as last year, and there are some big challenges in the coming year," Kershoff pointed out.

The more muted outlook for the retail sector certainly has not dampened investor appetite for retail stocks, with the retail index up 32 percent this year.

Whether this desire will continue into the new year, however, remains to be seen.

Jaco van der Walt, a partner at Ernst & Young, warned that lower sales growth could hurt the bottom line of retailers when coupled with higher costs in the form of wages and rental expenses.

Nevertheless, South Africans are clearly getting ready to shop till they drop.