Retail trade data released by Stats SA on Wednesday showed real (inflation-adjusted) retail sales growth for June fell 2.5% year-on-year, weaker than the slight positive increase of 0 .1% of the previous month.
The weak growth in real retail sales reflects a recent acceleration in retail price inflation, particularly in the “specialty food, beverage and tobacco” category (7.6%) of retailers, as well as in the “general merchants” category » (7%) where most of the general food and groceries are located. A spike in global and domestic food price inflation was a key driver.
However, food price inflation is expected to ease following a ‘de facto ceasefire’ agreement in which Russia and Ukraine agreed to end attacks on port facilities and merchant and civilian ships. This will indeed free up millions of tonnes of Ukrainian grain, which should help stabilize world food prices.
Economist Lara Hodes of Investec points out that retailers have been plagued by longer delivery times due to supply issues and power outages.
“Overall, the decline in real disposable incomes due to high inflation and rising interest rates has had a negative impact on consumer spending,” she said. South Africa’s inflation rate hit a 13-year high of 7.4% in June.
According to BankservAfrica’s Take Home Pay Index, real wages fell 7.8% in June, compared to the same period last year.
Pressure for commercial tenants
John Loos, real estate strategist at FNB Commercial Property Finance, says there are key implications for shopping malls.
“Rent payment performance for commercial tenants is expected to remain the weakest of the three major commercial property categories through 2022.
“TPN data for the first quarter of this year still puts commercial tenants in good standing, with rents at a low 62% and having weakened from the previous quarter, slightly below the office percentage of 63% and the percentage 68% industrial property,” he says, adding that retail tenants face the challenge of weak real retail sales growth in the face of higher price inflation. interest rates on debt, with the SA Reserve Bank having already raised interest rates by 200 basis points since the end of 2021, and the FNB expects them to rise another 125 basis points this year.
The FNB Property Broker survey found that most brokers saw commercial property vacancy rates decline in the first half of the year as the start-up and expansion of new businesses picks up pace after the closures of previous years.
However, recent renewed financial pressures on consumers, reflected in weak retail sales growth, are expected to dampen demand for additional retail space for new businesses and expansions of existing businesses for the time being. The recent downward trend in vacancy rates could therefore probably be interrupted for the time being.
Loos says malls that focus more on basic necessities such as food and groceries are still under pressure, with retail data from Stats SA reflecting sales pressure in the “general retailer” category, as well as the retail of health care and pharmaceuticals, while the “true general reseller”. fell 5.7% and sales in the healthcare and pharmaceutical category fell 4.3%.
“However, we still expect these retail categories to prove more ‘insulated’ against recent increased financial pressures from consumers, perhaps remaining more stable than centers more focused on non-essential purchases such as entertainment and dining, luxuries and “carry-forward” expenses often found in areas such as clothing and footwear, furniture and appliances, or hardware, paint and glass products for the upkeep of the house,” says Loos.
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Clothes and shoes
Households catching up on clothing and footwear spending contributed to a recovery in the broad clothing, textiles and footwear retail category, which as of June 2022 was still 6.8% above pre-Cool levels. lockdown in June 2019. However, housekeeping appears to have taken a back seat, with the hardware, paint and glass retail category registering an 8.6% drop in June.
BankservAfrica’s Economic Transactions Index also shows signs of pressure on consumers, falling for the second consecutive month. On a monthly basis, BETI declined by 1.3% in July compared to a decline of 4.7% in June,” said Shergeran Naidoo, Head of Stakeholder Engagements at BankservAfrica.
On an annual basis, the BETI increased by 5.6% in July 2022 against 5% in June. However, this annual comparison is off the low base created by the KwaZulu-Natal and Gauteng riots in July 2021, and under Covid restrictions. These helped push down the BETI, which rallied again in August 2021.
“This moderation in BETI is not unexpected in light of the many headwinds that have surfaced in the local economy over the past few months – from the recurring load shedding, which was intense in July, to the significant rise in fuel , food and general spending inflation is rising,” says independent economist Elize Kruger.
“Although the index still suggests that the underlying momentum in the economy could have been stronger than generally perceived in the second quarter of 2022, the moderation in July signals a weak start to the third quarter.”
Mixed picture
Other nowcast indicators continue to paint a mixed picture for the economy.
The Absa Purchasing Managers’ Index (PMI) fell to 47.6 in July, the lowest since July 2021, and significantly lower than June’s 52.2. This dramatic drop suggests that the manufacturing sector has been hit proportionally harder by the headwinds than the economy as a whole.
The S&P Global South Africa PMI, which reflects activity in the private sector, rebounded for a third consecutive month in July, helped by improving new orders, output and employment. All three measures reported the fastest growth rates since mid-2021, amid improving market demand despite rapid inflationary pressures.
Total new vehicle sales increased significantly by 31.8% year-on-year in July 2022, partly influenced by a weak base, but also reflecting post-Covid pent-up demand. With July’s good results, sales of new vehicles since the start of the year are 13.9% higher than a year ago.
On the confidence side, the South African Chamber of Commerce and Industry’s Business Confidence Index stood at 110.3 in July, 1.8 points higher than in June and 6, 1 point more than in May.
The improvement in sentiment would be the result of an increase in the export and import volumes of goods and a greater number of new vehicles sold. The Business Confidence Index for June and July 2022 indicates that the negative medium-term (year-on-year) business sentiment of May 2022 has been replaced by positive developments compared to the same period last year.
“Many different and often conflicting signals from high-frequency indicators are typical of an economy in ‘stop-start mode’, unable to gain synchronized momentum across sectors as the next cycle of shedding or headwind awaits. probably around the next bend,” says Kruger. BM/DM
