Sales drop as money runs out

Tamlyn Stewart

Tamlyn Stewart

Consumers have become far more tight-fisted when it comes to spending their hard-earned cash, and that's bad news for retailers.

Retail sales data released by Stats SA yesterday show that retail sales fell by 5,5percent year-on-year in real terms in August, falling further than they did in July when they declined 4,6percent.

That's because consumers have less and less cash to spend.

"Under current economic conditions there is no doubt that the consumer is under enormous pressure, especially in terms of monthly cash flow," said Stanlib economist Kevin Lings.

He explained that higher debt servicing costs, food prices, petrol prices, electricity tariffs and municipal rates have eroded households' disposable income and discretionary spending.

"There is also an increased risk of distress borrowing as consumers cling to recent lifestyles and, or find they have over-indulged over the previous four years. The risk of bad debts has, and will continue to rise," warned Lings.

That's bad news for retailers as sales are down 1,7percent year-on-year in the first eight months of this year, and economists expect only a temporary rebound in retail sales over Christmas.

"Retail sales on a year-on-year growth basis will remain negative for the rest of the year," said Gina Schoeman, economist at Macquarie First South.

"You can pretty much bank on retailers having a tough time for the next nine months. They are already starting to cut jobs in the retail sector.

"We're staying away from retail stocks until we get the first interest rate cut," said Schoeman.

Macquarie forecasts the first interest rate cut will be in June next year.

Nedbank economist Johannes Khoza forecast the first interest rate cut would come in April next year, but cautioned that consumer spending would only rebound in the third quarter of the year.

"Christmas will be a temporary rebound, and early next year the consumer will still be under pressure," said Khoza.

Lings warned that consumer spending on everything from cars and furniture to investment products would be under "enormous pressure" for the next 12 to 18 months.