Retail slow to recover from Covid

Updated: May 3

Retail trade sales, which represent close to 20% of South Africa’s GDP, still face a long road ahead to full recovery from the effects of the Covid pandemic.


It was pointed out in the September 28 edition of To the Point that the nature of household expenditure has assumed a profound change as a result of the unprecedented disruption induced by the pandemic.


The South African economy was very fortunate to have been buffered by a commodity price cycle that benefited the resource sectors, whilst generally favourable weather conditions and a highly competitive farming community also secured solid growth in the agriculture sector.


Unfortunately, however, retail, which is one of the mainstays of the domestic economy, continues to underperform relative to the pre-Covid period. During the first eleven months of 2021, total retail trade sales amounted to marginally more than R1 trillion, which was 3.2% higher than the figure for January to November 2020, but still 4.7% lower than during the corresponding period in 2019 (in real terms).


Of even more concern is the fact that 2021’s retail trade sales up to November are also still lagging behind 2017’s record inflation-adjusted figure for January to November, namely by 5.7%.


The reasons behind the lethargic recovery of retail trade sales are not difficult to find. The past year was characterised by repeated waves and new variants of the Covid virus, resulting in the regular imposition of lockdown restrictions – both domestic and globally.


This has led to the most pronounced shift in the pattern of household consumption expenditure in modern history, with South African households spending considerably less on furniture & appliances, alcoholic beverages, clothing and at restaurants and hotels than in the past.


On the other side of the equation, households have increased their expenditures on food, communication, education and housing & utilities, but the big-ticket items have suffered the most during the pandemic.


Retail trade also received an unforeseen whammy in July, when unrest flared up in parts of KwaZulu/Natal and Gauteng, which left its mark on consumer and business confidence during ensuing months.


Furthermore, it is nigh impossible for retail trade sales to flourish in an environment where unemployment has increased to historically high levels. An additional constraint faced by the retail sector has been the occurrence of goods being in short supply, due to universal supply-chain disruptions, especially in China and other Asian countries.


Techradar has reported that in the US, Apple products and Amazon devices sold out ahead of Black Friday and Cyber Monday, although these two days of extravagant retail activity did provide November’s sales with a welcome fillip. In South Africa, the forerunner month to the traditional December retail bonanza raked in R112 billion, which was 16% higher than in October, but only 2% higher, in real terms, than in November 2020.


Scarcity of online shoppers


South Africa is not the only country where lockdowns have exacted a heavy toll on retailers, but the domestic retail sector falls dismally short in the crucial area of online shopping. China is the leading country in the world by the share of retail e-commerce sales (44%), with the UK in second place at 28%.


Trading statements released in January by major retailers listed on the JSE provided e-commerce updates confirming a lack of penetration into this growing and increasingly indispensable part of the global retail framework. Retail groups Woolworths, Truworths, Foschini and Mr Price recorded online sales ranging from only 2% to 5% of total sales during their latest interim reporting periods.


From a longer-term perspective, there can be no doubt over the negative impact that state capture and public sector corruption & incompetence have exerted on investor and consumer confidence alike. Although capital formation by the private sector is showing signs of meaningful recovery, it needs to be complemented by the improvement and expansion of the country’s infrastructure to gain more momentum.


In the meantime, it would be unwise for the Reserve Bank to inflict more pain on consumers via an interest rate hike, when all and sundry know that the recent rise in inflation is mainly due to a 40% year-on-year increase in the price of fuel. Higher domestic interest rates will not encourage OPEC to increase oil output.

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