Mr Price warns that GDP growth is likely to remain muted

Clothing retailer Mr Price warns that  GDP growth is likely to remain “muted” and that any structural reform aimed at energising the economy is likely  to happen only after the national election, which is scheduled for some time in May 2019.

Speaking at the interim results presentation for SA’s third-largest retailer by market capitalisation, incoming CEO and current CFO Mark Blair said the drop-off in household expenditure and disposable income shows that over the short term, consumers are experiencing “constrained spending power”.

 This echoes what TFG said earlier in November,  when it flagged that it expects consumers to come under more pressure in the next few months.    At the time TFG CEO Anthony Thunström said he “expected trading conditions to remain challenging ... as consumer spending and business confidence remain under pressure”.

The difficulty in the clothing retail sector can also be seen at Woolworths, which said in a recent trading update that its SA clothing operation had  an effective 8% drop in sales for the 20 weeks to end-November.

Rising consumer inflation — driven by higher fuel prices and a rise in the VAT rate — as well as persistently high unemployment are putting customers under increasing pressure. 

Blair said the rise in the level of indebtedness is concerning. The Transunion SA consumer credit  index  shows a deterioration in credit health and a rise in defaults in the second quarter of the year.

The index underlines the findings of Statistics SA, which reported flat retail year-on-year sales for September, and the Reserve Bank finding that disposable income has declined.

Blair said even though South Africans are struggling, they are still relatively optimistic.

Blair said a good indication of how the group will perform for the Christmas period is how consumers respond to Black Friday promotions.

Despite the difficulties consumers are going through, Mr Price's revenue and earnings rose in its results for the half year. Revenue was up 7.8% to R10.53bn and profit before tax was up 12.6% to R1.79bn for the period.

claasenl@businesslive.co.za