No relief in sight for local clothing retailers in 2018
Clothing retailers are likely to see single-digit growth in future as low sales, worsened by weak economic growth and international competitors entering the market, continue to put the sector under pressure.
Weak and declining consumer spend, regulatory and political pressures, low credit growth and investment levels meant less buying power in the hands of consumers.
The IMF forecast SA’s GDP growth at 0.8% for 2017.
A recent report by advisory firm EY on the country’s retail sector for the first half of 2017 said the retail spend had recovered during the period.
However, senior equity analyst at Sasfin Wealth Alec Abraham said apparel retailers would at best experience single-digit growth in the 2018 financial year as they continue to come under pressure from a weak economic climate.
"I don’t think it will get significantly better for any of the retailers," he said. The clothing retail pie was getting smaller and being aggravated by international competitors who were gobbling up the market share of local retailers.
Portfolio manager at Cratos Wealth Ron Klipin said that while there had been a slight bounce-back from a very low base in the second half of 2017, it was likely that consumers would struggle into 2018. "Perhaps we will have a reasonable Christmas season, but people will be looking for value for money, impacting spending into 2018."
There was a paradigm shift among consumers to stretch their rand as far as they could. As people were less inclined to buy on credit, it would benefit cash retailers such as Mr Price, but would hurt others such as Truworths that operated largely on credit, Klipin said.
EY’s consumer products and retail leader for Africa Derek Engelbrecht said although the sector was improving after a particularly tough 2016, returns on equity were still under pressure, particularly for fashion retailers faced with rising competition from global brands and falling sales volumes.
On Monday, Truworths’ share price fell 2.08%, to R70.77. Mr Price slightly declined by 0.26%, to R176.80, while TFG, the owner of Markham and TotalSports among other brands, was trading 0.49% lower at R139.59. Woolworths was down 0.98%, to R55.48.
Lentus Asset Managers chief investment officer Nic Norman-Smith said that based on factors such as the weaker economy and foreign competition, it was not surprising that share prices had been under pressure.
"High expectations coupled with less than favourable reality result in a double whammy of negative share price outcomes."
Abraham said diversification in products, geographical location and target market were key to staving off some of the risk.
"It is always prudent to diversify your risk and TFG has spent a lot of time working on this," Abraham said.