Posted by: africanpressorganization | 15 June 2011

South-Africa / Retailer confidence dips on the back of slower sales growth and rising input costs


Retailer confidence dips on the back of slower sales growth and rising input costs

JOHANNESBURG, South-Africa, June 15, 2011/African Press Organization (APO)/ — Results from the latest Ernst & Young / Bureau for Economic Research (BER) retail survey show that the business confidence levels of retailers declined notably during the second quarter of 2011. The percentage of retailers reporting that they are satisfied with prevailing business conditions slumped from 58 to 47 during 2011Q2, after peaking at a three year high of 63 during 2010Q4. According to Derek Engelbrecht, Retail and Consumer Products Sector leader at Ernst & Young, this contraction can largely be ascribed to a marked slowdown in sales growth and substantial increases in retailers’ purchasing prices. “Given the softening in consumer demand, most retailers were unable to increase their selling prices in line with the increases in their input costs, implying downward pressure on profit margins,” said Engelbrecht.

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Looking at a breakdown of the survey results per retail sub-category, it is clear that durable goods (particularly hardware, paint and glass) and non-durable goods (e.g. food, beverages, tobacco, cosmetics and pharmaceuticals) retailers saw the largest slowdown in volume growth. In the case of durable goods, lower growth rates can most likely be ascribed to base effects and the replacement cycle nearing its end, as consumer spending on durable goods such as furniture, electronics and other household appliances rebounded strongly during 2010. Slower growth in real wages, lacklustre increases in household credit extension and expectations that interest rates may start to edge upwards during the second half of 2011 may also be spoiling the party for durable goods retailers. “In turn, the anaemic pace of job creation, coupled with rising food and fuel prices, probably weighed on non-durable goods sales volumes during 2011Q2,” Engelbrecht said.

In sharp contrast, retailers in semi-durable goods (e.g. textiles, clothing and footwear) reported that sales growth rebounded following an unexpected slump during 2011Q1. While semi-durable goods retailers also reported substantial increases in their purchasing prices relative to the second quarter of 2010, they were able to contain the increases in their selling prices, and in doing so, boosted volume growth.

Another striking feature of the latest retail survey results is the rate at which the input costs of retailers are rising. Whereas a net majority of 3% of the BER’s retail respondents still reported slower increases in their purchasing prices during 2010Q4, 29% reported higher purchasing price increases during 2011Q1. During 2011Q2, this index surged to a net balance of 54 points. “While the price increases were broad based, retailers in the non-durable goods trade in particular reported a substantial uptick in purchasing prices, hinting that food prices may rebound more strongly than expected,” according to Engelbrecht. The survey results showed that selling prices also increased further during 2011Q2, albeit at a slower rate compared to procurement costs. Given the confluence of higher commodity prices, soaring electricity and petrol prices and rising wages, it is not surprising that retailers reported further upward pressure on retail selling prices during 2011Q2.

According to Statistics South Africa, the growth in retail sales volumes eased from a robust 7.6% year-on-year during 2010Q4 to 5.6% year-on-year in 2011Q1. The results from the latest Ernst & Young/BER retail survey suggest that growth slowed further during 2011Q2.

During 2010, factors such as exceptionally high real wage increases, low interest rates, a strong rand (and hence low import prices), pent-up demand and high consumer confidence saw a better than expected bounce back in retail sales volumes.

“Given that we expect to see lower real wage increases, increasing food and fuel prices and interest rate hikes during the second half of 2011, as well as base effects, the growth in retail sales volumes will in all likelihood taper off further towards the end of the year. However, if retailers are able to increase their selling prices without further impeding volume growth, turnover could remain relatively sturdy,” Engelbrecht concluded.

Distributed by the African Press Organization on behalf of Ernst & Young.

Ends

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Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 141,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

Ernst & Young refers to the global organisation of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. This news release has been issued by EYGM Limited, a member of the global Ernst & Young organisation that also does not provide any services to clients.

Following on from Ernst & Young’s successful integration in 2008 of 87 countries into one area from across Europe, Middle East, India and Africa (EMEIA), the firm has launched its Africa Business Center™ (ABC), which aims to enhance the effective and efficient links between its geographic reach and areas of expertise. The firm enjoys representation in 30 countries across Africa.

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Issued by: Fathima Naidoo

Ernst & Young

Tel: +27-11-772-3151

Cell: +27-76-662-2842

Email: fathima.naidoo@za.ey.com

On behalf of: Derek Engelbrecht

Ernst & Young

Tel: +27-11-772-3567

Email: Derek.engelbrecht@za.ey.com

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Ernst & Young


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