NOMPU SIZIBA: The Bureau for Economic Research released its Retail Trade Survey for the second quarter of 2021. It found that all the sub-sectors that it covers show a good increase in confidence compared to the first quarter, and most certainly against the second quarter of 2020. The survey looks at the retail, wholesale and motor-trade sectors.
Well, to give us a sense of the operational environments of these sectors and whether sentiment can continue to hold, I’m joined on the line by Tshepo Moloi. He’s an economist at BER. Thank you so much Tshepo, for joining us. Now you indicate that retailer confidence leapt to a six-year high of 54 points in the second quarter. That’s up from 37 points in the first quarter. That’s quite considerable. So what were some of the drivers that you saw there?
TSHEPO MOLOI: A very good evening to your listeners, Nompumelelo. Indeed, a quite upbeat performance that we saw in the retail sector. That is essentially retailers being optimistic about better trading conditions and higher profitability on the back of improved sales following. You’d recall that South Africa underwent a strict lockdown at the beginning of April last year, where we saw goods such as trading items, durable goods such as furniture and appliances, prohibited from being sold. So much of the results that we see here also on the back of a low base coming from the 2020 Q2.
But I think beyond these base effects we are starting to see a bounce-back in the confidence level of high-income earners, and that’s fuelled by a number of factors. So among these is the better-than-expected economic recovery that we see both locally and globally. We’ve had a stock market that has been trending up. Interest rates have been quite low, sustained at very low levels. And we had a relatively stronger rand exchange rate.
As well, given the …… [1:55] labour market at the peak of the pandemic, high-income earners were simply spending less on holidays abroad or on buying new vehicles; all of those savings are certainly benefiting the semi-durable goods guys, and the durable goods retailers.
NOMPU SIZIBA: Makes sense. Your report also looks at the wholesale division, where you registered confidence up by five points from the first quarter to 63 points in the second. I suppose it’s inevitable that if retail is doing well, then so too would wholesale be doing well; but it’s not a jump that was in the order of what we saw for the retail confidence. So what are some of the dynamics that you saw playing out there?
TSHEPO MOLOI: Indeed, you are quite right that ideally when the retail sector does well it certainly bodes well for the manufacturing sector, the wholesale sector. But you’d recall that in the last survey results it was non-consumer goods that were not performing quite well. These were such as building materials, chemicals and so on. What we are beginning to see here is that those particular retailers are starting to perform quite well. This related to the mere fact that we are starting to see a pickup in the construction sector, as well as in the manufacturing sector, so that certain people step in sales …… [?3:16]of the non-consumer goods guys.
But from our consumer goods guys – your food, your beverages, your clothing, with the number of people purchasing their winter clothes now relative to last June 2020’s lockdown restrictions.
NOMPU SIZIBA: The motor trade sector has gone through the mill. Obviously it’s not been as resilient as the wholesale and retail sectors. But you’ve also registered quite good news with that sector, which is up 33 points to 63 points in the second quarter. Does this reflect bumper car sales in the period and, if so, what’s driving that, given that we always hear about the consumer struggling.
I know you’ve already talked about the more well-heeled consumer, but the vast majority of people have actually been struggling during the period.
TSHEPO MOLOI: Precisely. Even here there’s a bit of base effects. If you recall, the motor trade came to a complete halt in the second quarter last year. So we asked our new dealer retailers whether or not their sales are up, down or remain the same relative to last year. And in those results we are able to see that last year in the second quarter sales were literally at minus 100. So there’s a base effect here as well.
What we begin to see is that the purchasing of new vehicles in terms of sales volumes also coincides with what we are seeing with durable-goods retailers, where high-income earners are feeling a bit more confident to go out and buy durable goods and large-ticket items.
NOMPU SIZIBA: Now what are some of the headwinds confronting the consumer for the balance of the year that could impact the performance of the sectors that we’re looking at?
TSHEPO MOLOI: Indeed, several risks do lie ahead. As you know, South Africa is in the midst of the third wave of the pandemic amid our vaccinations rollout, which could feed renewed lockdown restrictions certainly harming the sector.
But we also have a relatively weak labour market, as well as issues with the power supply from Eskom, which certainty do not bode well. But I’m more specifically worried about non-durable goods retailers, particularly given the knock that we continue to see for low-income earners, where we have the cancellation of the top-off grants, the social youth grants and so on, which were contributing significantly towards those retailers. So collectively those grants would contribute round about R20 billion in extra income per quarter for low-income consumers.
But we are also beginning to see that food inflation is on the rise. Electricity prices are high and low-income earners only received below-inflation grant adjustments during the February budget. So secondly, low-income consumers remain under pressure and that will certainly not bode well for the non-durable goods guys.
But I must say, Nompumelelo, that I think it’s always important to emphasise these considerable risks. I do think that these second-quarter results nevertheless do point to positive trends. And they also point to you still having an anticipated growth industry sector during the second quarter of 2021.
NOMPU SIZIBA: That’s positive. Just to touch on one of the areas that you raised in terms of headwinds, how worried are you about South Africa’s third wave of Coronavirus infections, and the fact that, for a number of reasons, our national vaccine rollout programme has hit a number of speed bumps – as well as the possible further harm that this could do to the economy?
TSHEPO MOLOI: We are actually quite worried about the third wave, given that we know what the restrictions will do in terms of the sales volumes and profitability of retailers. I don’t believe that South African retailers can afford another lockdown. Already we are seeing the impact that lockdown has had on the services sector, where a number of businesses are closing down. Likewise, in the retail sector, if we were to have further lockdowns, that would certainly harm future prospects for retailers moving forward.
NOMPU SIZIBA: Tshepo, thank you very much for your time and your insights there. That was Tshepo Maloi. He’s an economist at BER.