[divider style=”solid” top=”20″ bottom=”20″][dropcap]T[/dropcap]he improvement in sentiment across the entire trade sector in South Africa can certainly be attributed to the eased lockdown restrictions since the BER’s 20Q2 survey – when the sector registered record low levels across all categories.
COVID-19 lockdown restrictions have eased from a regime that only permitted the sale of essential goods under restricted trading hours, to one that pretty much allowed retailers to trade all products except for cigarettes and alcohol.
Liquor sales were permitted in June but then banned again on 13 July 2020 (before being allowed once
again from 17 August). The Motor trade industry, likewise, also resumed full trade through its car dealerships on 1 June 2020.
What remains constant between the 20Q2 and 20Q3 business environment is the somewhat
restricted trading hours and adherence to COVID-19 hygiene protocols – which continue to increase the
operating costs of retailers.
Therefore, the overall 20Q3 BER survey of more than 700 retail stores, wholesalers and motor dealerships conducted online between 12 and 31 August 2020 simply reflects the changes in the business environment and how consumer spending adjusted following these changes.
After plunging to a 29-year low of 11 in the second quarter of 2020, retailer confidence surprised on the upside during the third quarter – rising to 36. A reading of 36 indicates that less than four out of 10 respondents were satisfied with business conditions in the third quarter.
From such a low base, when retailers of most durable and semi-durable goods were non-operational and could not generate any income for a significant part of the second quarter, this improvement in sentiment simply reflects these specific retailers’ optimism about their ability to trade again, rather than a fundamental shift in the operating or macroeconomic environment.
In fact, business conditions deteriorated across the entire retail sector given the bleak domestic backdrop, which was further exacerbated by the COVID-19 induced disruptions. As a result, retailers have begun reconfiguring their business models for survival and adapting their operations to a poor business environment.
Retail sales volumes recovered some lost ground in the third quarter, although remaining well below the 19Q3 level. While the weakness in retail sales volumes is broad-based, non-durable goods took the hardest knock relative to the second quarter. Much of the poorer performance can be attributed to the alcohol and tobacco ban, especially since both products contribute significantly to the revenue stream of non-durable goods retailers.
Secondly, restaurants and take-away outlets have also resumed operations, resulting in a slight shift in consumer spending away from grocery stores.
Thirdly, the initial pent-up demand for pharmaceutical goods has also moderated amid decreasing infection rates across the country. The latest retail sales data from Stats SA also confirms the BER survey results, with the sale of food, beverages and tobacco in specialised stores reported to have declined by 18.4% in July 2020 (y-o-y). Sales volumes of both durable and semi-durable goods also improved in the third quarter, in line with eased trading restrictions.
Confidence among wholesalers also improved in the third quarter, reflecting a positive change in the business environment. After plunging to a record low of 4 in the second quarter, wholesale confidence edged up to 33 during the third quarter. In fact, the overall performance of wholesalers in the third quarter was more upbeat compared to other trade categories (retail and motor trade). Eased trading restrictions also saw business conditions rebound from an all-time low.
The BER survey also indicated that – while the sales volumes of both sub-categories of total wholesale sales remained weaker compared to the same quarter of last year – there has been remarkable improvement compared to the second quarter.
In all, sales volumes shrank at a much slower pace in the third quarter compared to the second quarter. The rate of contraction in the volume of sales of consumer goods (such as food, beverages, clothing, and other household goods) eased somewhat more than non-consumer goods (building materials, chemicals, and machinery). One possible explanation for the relatively better performance of wholesale sales of consumer goods (with a net balance of -15 in 20Q3) compared to overall retail sales (-42) is the bumper maize crop.
The motor industry resumed trade through its dealerships under significantly eased lockdown restrictions on 1June 2020. As a result, dealer confidence edged up to 16 in the third quarter, after crashing to levels last experienced during the global financial crisis in the second quarter.
Looking at sales volumes, it is quite evident that used car sales performed noticeably better than new passenger car sales in the third quarter. This suggests that the current economic climate (i.e. suppressed income levels, job security and high new car prices) favours the used passenger car market. The price of used vehicles declined by 20% between May and July – due to increased supply emanating from car repossessions as well as asset disposals by major car rental companies.