Retail sector confidence could lose momentum over continuing uncertainty due to new Covid-19 variant
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CONFIDENCE in the retail sector could lose momentum as domestic headwinds continue to cause uncertainty in the industry amid travel bans in light of the new Covid-19 variant.
The latest Bureau for Economic Research (BER) Retail Survey, released yesterday, suggests that retail sales volumes picked up in the fourth quarter of 2021, but the performance was not broad-based.
The BER said overall business conditions improved in the fourth quarter after falling further into negative territory in the previous quarter due to the third wave of Covid-19 infections and the civil unrest.
This was mostly attributable to the absence of stringent lockdown restrictions and increased traffic footfall at malls and shopping centres.
However, constraints such as the lingering impact of the civil unrest, supply chain disruptions, rising input costs and continuous bouts of load shedding all continued to weigh on the operating environment for retailers.
As a result, the BER retailer confidence index declined marginally from 56 to 52 points in the fourth quarter.
The BER said confidence was largely dragged down by retailers of food and beverages on the back of a deterioration in their business conditions.
Non-durable goods retailers also experienced weaker sales volumes and a decline in pricing power, resulting in lower profitability.
BER economist Tshepo Moloi said sales of food and beverages subsided during the quarter while sales of clothing and footwear, furniture, electronics and household appliances edged up.
Moloi said food and beverage sales were knocked by the reopening of the services sector as the easing of lockdown restrictions enabled restaurants, pubs, hotels and theatres to trade again.
“In the third quarter, the trading capacity of restaurants was constrained due to pandemic-related restrictions and fears,” Moloi said.
“This led to spending shifting away from services and other discretionary categories to essential products, which greatly benefited non-durable goods retailers.
“However, with the third wave behind us, consumers are able to divert spending away from non-durable goods to the hospitality sector.”
Meanwhile, hardware retailers remained optimistic amid improved sales volumes and better trading conditions.
Moloi said that among the three retail groups durable goods recorded the highest increase in purchasing prices in six years.
He said semi-durable and durable goods retailers expect to profit from the festive season shopping period and Black Friday sales, while high-income earners continue to benefit retailers of furniture and hardware.
Retailers in general kept selling prices elevated, but purchasing prices continue to rise at an even faster rate.
“The survey results suggest that semi-durable and durable goods retailers are passing on these higher input costs to consumers in the form of higher selling prices, but weaker food and beverage sales at the retail level have started to dent the pricing power of non-durable goods retailers,” Moloi said.
“As the services sector journeys on the road to full recovery, the retail sector is expected to lose momentum.
“However, the discovery of the new Covid-19 variant in the country, load shedding, escalating cost increases, global supply chain disruptions and a weak labour market remain causes of uncertainty for the sector.”
BUSINESS REPORT ONLINE