Retail

Shopping no longer dropping…FW 09/ 02

Several factors contribute to the poor performance of the retail sector:

·         Consumer confidence levels are at their lowest since 1993, particularly among the black, lower income groups.

·         The Rand’s depreciation against the Dollar since September 2000 may add to inflation and diminish hopes of a further interest rate cut.

·         Fuel prices will also rise as a result, and together with higher transport costs the above factors may continue to dampen consumer and retail sentiment.

·         Business models: have not really responded to structural changes in the consumer market.

·         Business sentiment among retailers is low, but the retail index may be coming out of a trough: has increased 15% from December 2000.

·         Recommendations: improvement in the fundamentals will lead to earnings recovery.

More stores, less profit…(FW 23/ 02)

Further retail development is shrinking an already over-supplied market…

·         This has had the effect of diminishing profitability for many of the large national retailers.

AGAINST:

·         Current turnover: many retailers are struggling to make trading densities of R10,000 m²/ per year – the industry benchmark is R20,000/ m² per year.

·         New retail outlets do nothing to improve the profitability of the chain: what happens is that new centres take trade away from existing centres, while the cost of overheads – including rentals - continues to rise.

·         Retailers would expand both into new shopping centres, and within existing ones on the heels of their competitors. Recently, retailers have started to rationalise their operations, closing down under performing stores.

·         SA does not have the population with the spending power to support the proliferation of new shopping space.

·         The addition of new retail space has been too rapid for the pace of economic growth: in the last decade alone almost 1,2m sq.m. contributed to the current 6m sq.m (235 centres) by shopping centres of greater than 10 000 sq. m. floor size.

·         In time, it will get increasingly difficult to tenant centres of this size (unless there is a drastic improvement the economy, personal incomes & hence buying power)

FOR:

·         The larger national retailers are only struggling because they have not adapted to changes in consumer spending patterns.

·         Small niche marketers and specialist retailers have taken up the slack -: some are managing trading densities of R 22,000/ m² per year.

·         Some areas of SA are “under-shopped”: KZN consumers have twice the spending power found in Gauteng.

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