SIMON BROWN: I’m chatting now with Casey Delport, an investment analyst at Anchor Capital. Good morning, Casey. I appreciate the early morning time. You put a note out on the Anchor website yesterday morning talking about the SA consumer. The key point, I suppose, is that the general economic recovery has been supportive of a consumer rebound and we’re certainly seeing evidence of it.
You mentioned electricity consumption, you mentioned mobility, which we can get from Apple and Google in a sense. There has been a fairly strong rebound from the hard lockdowns of April, May last year.
CASEY DELPORT: Hi there. Good morning and thank you for having me. When you look at the local consumer landscape in South Africa at the moment, there really are careful nuances to consider. You mentioned a good few of them. From one side, if you look at several local retailers, they’ve shown surprising resilience from the consumer sector. There are good results coming out from the likes of Mr Price, Pepkor, and strong post-year-end sales from The Foschini Group and so on.
This of course would bode well for the health of the South African consumer overall and indicates that South Africans have been able to get themselves back on track surprisingly quickly following the hard lockdowns of last year. But, when you look at the general state of the South African consumer, especially from a retail perspective, a key point to note is that while we are likely to see fairly robust year-on-year growth in 2021 consumer spending, this spending is also extremely uneven across the wider income spectrum, and that’s very important to consider at the end of the day.
Once the strong, low basis of 2020 has played out, the year-on-year growth rates in consumer income and spending decline quite rapidly. And if we look at the latest retail sales coming out from April, this really corroborates it. At the end of the day retail sales fell further by 0.8% month-on-month in April and this leaves retail sales below the pre-pandemic level. You want to prudent and to be cautious in employing firm conclusions from one month’s worth of data, but the weak print for April might reflect the fact that the savings that households accumulated last year may be depleting.
Ultimately the outlook for the sector is quite constrained. It’s important to remember that the government has stopped the special Covid-19 social relief of distress grants from April, and consumer spending is likely to further be dampened by a sharp rise in Covid cases, as you mentioned.
SIMON BROWN: I like your point there. Let’s be, I suppose, cautious with our expectations. We’ve had a strong rebound. Some of that is certainly pent-up demand. Some of it is certainly the Ters, the government grants, and so on sort of working their way out of the system. My sense is that in the next maybe couple of months the results which we’ll start seeing to June and maybe even to August are going to give us a better picture of just how robust the consumer has come through the pandemic.
CASEY DELPORT: Yes. That’s 100% true. At the end of the day unemployment in South Africa still remains worryingly high at 32.6%. That’s really important to remember when we look at the strength of the consumer going forward. Traditionally of course, from a socioeconomic perspective, the lower-income groups continue to face the greater hardships. But as we look through the data specifically even our most affluent consumer segments continue to be affected by the macroeconomic conditions at play at the moment. But that’s notwithstanding the higher income base that the consumer group has as a relative buffer. So I think these next few months really will be quite telling.
SIMON BROWN: And one of the key points – and it’s partly your conclusion to the note that you wrote – it’s so incredibly true that we are a nation of spenders rather than savers. Truthfully many countries can say that. Japan is obviously the saving nation, but we do spend, and that’s great for retailers; it’s thanks to easy credit. But that does have very longer-term implications in that we do spend when we’ve got the cash in our pocket, where we can get a credit card. We’re out there and we are shopping up a storm.
CASEY DELPORT: It’s true. And it really is fascinating when you look at it. South Africa has such a unique culture when it comes to savings versus spending relative to our peers. If we look a little bit closer to home towards the Southern African Development Community, even our Brics nations, they all have positive saving rates, and SA doesn’t.
I think the question at the end of the day is what makes South Africa so different. Again, it largely boils down to the fact that it is so easy to get a credit extension in South Africa, and it really has not allowed people to build a culture of savings. The longer-term issues coming through from this are that, when we look at this from a greater perspective, often South Africans don’t even consider the interest rates that they are paying; and worryingly most people don’t actually understand how much they pay in things like fees and interest, given the amounts aren’t transparent. We have seen this come under fire in recent years by the various sorts of consumer and bank regulators.
All of this at the end of the day really means that on average South Africans will continue spending, whether they have the funds available or not, and that does have really important long-term implications.
SIMON BROWN: It does make for an interesting quirk as an investor in the retail space. If we are spending, not saving, the retailers are without doubt one of the winners as a result of that. Casey Delport, investment analyst at Anchor Capital, I really appreciate your early morning.
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