As at end-March the JSE's general retailers index trailed the all-share index by 50%, showing that investors have turned their backs on the sector for fear that dampened consumer sentiment and spending power will translate into lower earnings for these companies.

With most retailers (barring food and general merchandise specialists) trading on single-digit earnings multiples, stocks in those companies are going for bargain basement prices.

For example, take respected clothing retailer Truworths. Appealing to younger, fashion-conscious buyers who have more disposable income than consumers with families to support, Truworths managed to grow sales by 20% for the 27 weeks (six months) to end-December, with operating profit rising 27% to R700m. It was also able to maintain its operating margin at 20%. Despite that, Truworths' price has fallen 28% since March 2007 and is now trading at 2516c/share - placing it on an earnings multiple of 8,8.

Is now the time to be buying, or will the outlook worsen before things improve? Directors at some retailers believe the time is now and are taking the opportunity to buy: consider Foschini non-executive director Michael Lewis, who spent a cool R32,2m on Foschini shares.

However, the 500 respondents in the sector surveyed by University of Stellenbosch's Bureau for Economic Research haven't been that despondent in five years. The BER's retail survey for first quarter 2008 found confidence levels "declined dramatically"; the index fell from 71 points in final quarter 2007 to 52. BER economist Linette Ellis says such declines and low levels "typically signalled the beginning of a recession in the sector".

The most recent retail sales data from Statistics SA and the Retailers' Liaison Committee show growth in sales, but only just. Nedbank economists Dennis Dykes and Johannes Khosa note that in the three-month period to January, retail sales recorded their first decline in about seven years, dropping by 0,2%, compared with the same period in 2007.

They say the RLC's figures show a recovery of 5,3% in year-on-year in sales growth in January after a moderate rise of 2,9% in December.

Dykes and Khosa say retail sales "will remain under pressure this year as the impact of higher household debt, higher inflation, higher interest rates and tighter access to credit continue to weigh on consumers".

Abri du Plessis, chief investment officer at Gryphon Asset Management, says potential investors' most important consideration in the decision is interest rates. "You can't go in before the cycle has turned and rates start declining. I can't see that rates can be lifted further. But if you consider recent comments by [SA Reserve Bank Governor Tito] Mboweni about stemming secondary inflation effects he'll step in."

Inflation continues to surprise on the upside - having breached the 6% upper end of the Bank's target for 11 consecutive months when February's 9,4% figure is included - and causes a lot of uncertainty, with the bond market discounting the chance of a further hike either now (in April) or in June, says Du Plessis. "It's a definite threat and will have a serious impact on consumer confidence."

"Consumers are under massive strain and when they'll see any relief is beyond guessing," says Chris Gilmour, an analyst at Absa Asset Management Private Clients, which doesn't have any exposure to retail stocks on behalf of its clients, preferring resources and construction counters at this stage. "While we'd expected rates to stay high until fourth quarter 2008 that's been extended until at least the first quarter of 2009."

Gilmour says retailers with greater exposure to cash sales - food retailers, such as Shoprite and Pick n Pay, and low-end building suppliers, like Cashbuild - are faring better. "Credit retailers, especially furniture retailers, are going through hard times.

"The real tragedy is that all these businesses are exceptionally well-run. They're being hurt not by internal mistakes but by the ambient economic situation. Until there's rate relief there's precious little they can do."

Du Plessis says share prices are discounting lower earnings but aren't factoring in "big fall-offs". "With a further hike in rates that could be the case."

Calling the top of the rates cycle is difficult this time around, says Du Plessis, who suggests investors wait before looking at more cyclical retailers. "If you want to buy volume you have to react before the rate move and would thus have taken a rate cut view already. But looking at how prices are staying low that hasn't happened yet. It shows the type of uncertainty that's in the market."