South African shopping malls bustle as retailers resist slump

JOHANNESBURG – While bankruptcy stalks shops on European and US high streets, South African malls have kept sales rising, spurring hopes of a quick recovery in Africa’s biggest economy and lifting retail stocks.

South Africans have tightened their belts in the face of an economic downturn like shoppers around the world, and official statistics showed retail spending fell 4 per cent in November. But from supermarkets to furniture shops, retailers reported surprisingly resilient Christmas sales figures – albeit boosted by inflation – and appear to have avoided the deep discounts that are swallowing profits in Europe and the United States. The buying power of a burgeoning black middle class and the dominance of lower income consumers, who are less vulnerable to the vagaries of markets than more upmarket shoppers, have helped shield South African retailers from the global downturn. And Christmas figures suggest shoppers are cutting back on big-ticket items like cars or holidays instead of clothes and food, good news for general retailers and supermarkets. ‘Christmas trading was better than most people expected, and consumers came to the party,’ said Dean Ginsberg, a retail analyst at Citigroup. ‘The reality is there are more people in the economy spending more money.’ The Johannesburg general retailer index has outperformed the broader market this year, up a fractional 0,02 per cent compared with a three percent fall on the All-share index. Food retailers have gained 0,8 per cent. Some analysts believe the good news has been priced into retail stocks, several of which are more expensive on a price to earnings basis than peers in Europe. But with potentially aggressive interest rate cuts and lower fuel prices expected to lift spending in 2009, South Africa has better growth prospects. ‘ASTONISHINGLY GOOD’ Shoprite , the continent’s biggest supermarket chain dubbed the ‘Tesco of Africa’ by one analyst, scored a 27 per cent rise in first-half sales to end December that was hailed as astonishingly good by Nedcor analyst Syd Vianello. South Africa’s biggest listed clothing retailer Truworths, an investor favourite for its knack for translating fashion trends to the high street, said half-year sales rose nine per cent and forecast a 12-17 per cent rise in underlying EPS. ‘It looks as if (Truworths) is going to emerge from the downturn relatively unscathed, h broker Barnard Jacobs Mellet said in a research note this month, adding it may already have turned the corner in terms of profit. Most retailers boast robust balance sheets. Compare that with Britain, where a long line of retailers, including high street stalwart Woolworths, has called in administrators, or the United States where big name brands such as Home Depot and Starbucks have been slashing jobs. It’s not all rosy. Economic growth skidded to its lowest level in a decade in the third quarter and the mining sector in South Africa plans to lay off at least 14 000 workers, with fears the higher-paying financial or retail sectors may be next. But South Africans don’t seem overly concerned. A Mastercard survey found consumers here were the third most optimistic in the Asia Pacific, Middle East and Africa regions. South Africans have been spared the shock effect of a bank collapse. They have reined in spending gradually since the central bank started raising rates in June 2006 and credit growth has dropped sharply over the past two years. Economists note that while central banks in the west have already slashed interest rates to almost zero, South Africa has plenty of scope for monetary easing. Analysts are forecasting 300 basis points of cuts in the repo rate this year, on top of a 50 point cut in December to 11,5 percent. The market is betting cuts will be front loaded in the first half of the year. Nazmeera Moola, Macquarie Bank’s head of macro strategy, said 300 basis points in cuts plus slower inflation could lead to a 3,8 per cent increase in real disposable income for consumers in 2009 – double 2008’s increase – even accounting for job cuts. ‘HANGOVER’ Retailers must show they can translate top-line growth, boosted by inflation of 10,3 per cent in December, into profits, and some investors worry about margin-crimping discounts. Prices are also a concern. Clothing and furniture retailers may have to pass on to cost-conscious consumers price hikes on imports triggered by a weaker rand. ‘Product inflation is going to hurt this quarter – Christmas was OK but there’s going to be a hangover,’ said one Johannesburg-based retail analyst who asked not to be named. But while discount retailers such as Massmart or Mr Price will likely keep stealing market share from pricier chains like Woolworths or Foschini, shop windows have been largely free of the ‘rock-bottom prices’ signs plastering high streets in London or New York. And retailers are already pressing suppliers to shoulder some of the burden on prices, at least regarding food. -Nampa-Reuters