ISANA CORDIER: Consumers are spending more, but will they splash out on Black Friday?

Black Friday 2022 will provide a fascinating insight into the state of the South African consumer as individuals begin to rebuild their personal balance sheets while weighing up a global environment that is facing unprecedented social and economic upheaval.

Over the past three years consumer behaviour has been largely influenced by the Covid-19 lockdowns and “work-from-home” culture, driving spend on home improvements, online gaming and technology, and the rise of home delivery services.

Now as the world begins to return to pre-Covid habits we are seeing a strong swing towards leisure and travel services — at least we were up to the point where Russia’s invasion of Ukraine sparked a surge in inflation. This has driven central banks to aggressively tighten interest rates in both developed and emerging markets.

Our own economic issues with unstable electricity supply and the havoc this causes for business owners — over and above the rising fuel spend — adds a further concern regarding South Africans’ finances.

Even so, we continue to witness growth in transactional spending from our card data. We recognise this does not distinguish between debt and available cash, or the effect of inflation on the increased value spent. It also doesn't show the effect on cash consumers, the larger part of our economy and probably the hardest hit.

This leads to the obvious question: how financially healthy are consumers, and what trends are we likely to influence retailing over the coming year? The sharp spike in inflation has started to affect average basket sizes, driving higher spending at month-ends and causing a shift in certain consumer behaviours.

The BankservAfrica economic transactions index shows that 2022 has been a year of two halves. This monthly index, which tracks the number of banking transactions cleared through BankServ, hit a record high of 143 in May, then declined for four consecutive months to September.

While load-shedding had a definite negative effect on business activity, rising interest rates also forced consumers to tighten their belts. Credit bureau Transunion’s third quarter Consumer Pulse review pointed out that the unemployment rate has dipped slightly as more people found work.

In a survey, 37% of South Africans expected their income to rise, but the welcome dip in unemployment is being offset by a rising cost of living.

Most major retailers and fast-food operators have reported a solid 2022 and have forecast growth over the festive season. However, with traditional retail being disrupted over the past few years there is some divergence in how they are expected to approach Black Friday.

Walmart-owned Massmart has indicated that it is likely to focus on a single day of sales, while Woolworths will unlock a series of specials building up to November 25, and the more digitally savvy retailers are expected to extend specials into “Cyber-Monday”.

One of the areas identified by smaller niche retailers relates to stock management and fulfilment. While larger retailers have been able to stock up on popular product lines, many of the smaller players have been negatively affected by strikes at Transnet's rail and port operations. 

Our view is that retailers are more likely to focus on a “Black November” strategy, with sustained discounts over a longer period rather than looking for a single day of deeply-discounted sales.

This Black November we expect consumers to be less opportunistic and to rather follow a more planned approach when buying. Consumers are more likely to do research before spending money and be more deliberate and selective. As seen in 2021, this placed online retailers at an advantaged position in many of the sale categories. 

Christmas and the new school year are around the corner, so we expect consumers to turn their money towards these kinds of transactions. It will also be a time for consumers to purchase planned items they are looking to upgrade, like a new stove, fridge or electronic equipment. We expect groceries to remain the biggest category spend throughout the month.

In short, we expect fewer impulse purchases, but if there is one thing we have learnt it is that we are dealing with an unpredictable consumer and anything is possible.

We look forward to unpacking Black Friday 2022 and providing insights into the spending over this period. In the past Black Friday spending has been seen as a win-win event where consumers can cut costs and retailers can clear stock.

That said, the fact remains that pressure is mounting on households, and the combination of rising inflation and higher interest rates is likely to provide a handbrake on consumer spending going into 2023.

• Cordier is sector head: consumer goods & services, at Absa CIB.