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Retail still on the road to recovery

Retail trade sales have started the year on a positive note, with nominal growth of more than 7% recorded for January and February (year-on-year). After adjustment for the effect of inflation, this growth rate drops to 1.4%, which is still positive, albeit only marginally so.

By virtue of its sheer size, the value of retail trade represents a key indicator of the state of an economy. In South Africa’s case, this figure amounted to more than R1.1 trillion last year – almost one-fifth of total GDP.

In December 2021, retail trade sales reached an all-time record high of R133 billion, which reflected the same broad growth trend of just above 7% (at current prices) than during the first two months of 2022.

Unfortunately, these growth rates have not been sufficient to lift the total value of retail sales for the first two months of the year to above the record that was achieved in 2018 (in real terms), although the gap has narrowed to less than one per cent.

It seems clear that the unrest that shook the country in July 2021 continues to exert a lingering negative effect on the retail sector, as is also evident from the latest Altron/Fintech Household Resilience Index (AFHRI). This index captures 18 different indicators related to sources of income for households and the reading for the 4th quarter of 2021 also remained below pre-pandemic levels, with the 3rd quarter of last year giving the Index a knock.

It is also clear that the unprecedented disruption caused by the Covid-19 pandemic over the past two years continues to leave its mark on the spending patterns of households.

When analysing data sets on retail trade sales published by Statistics SA, it is clear that a reversal is now taking place of the profound shifts in consumer spending patterns that occurred during the height of the first wave of the pandemic in 2020. At the time, the categories for specialised food & beverages and clothing & textiles outperformed other retail groups by a considerable margin.

During the first two months of 2022, however, these two categories recorded negative year-on-year growth rates, both in nominal and real terms, which should be viewed from the perspective of a return to normality.

It is encouraging that the categories for furniture & appliances and hardware are performing well, as this reflects, to some extent, the recovery of household disposable incomes, which took a beating during 2020 and into 2021.

The return to a more traditional composition of household consumption expenditure poses challenges to retailers, especially with regard to inventory management. The latter became a strategically important business strategy during 2020, when inventories declined to record lows, but last year saw a rebound to the tune of more than R44 billion (for the economy as a whole).

Hopefully, the SA Reserve Bank will take note of two crucial issues before continuing on its new-found restrictive monetary policy stance: Firstly, the prospect of a sharp decline in the oil price when peace returns to the Ukraine and, secondly, the absence of any sign of demand-led inflation in the domestic economy.

South Africa needs demand-led growth and employment creation, not an obsession with driving inflation down to unrealistically low levels.

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