The sixth consecutive monthly decline in retail sales figures signals bad times for the retail real estate market, FNB economist John Luce warns.
in a comment on The latest retail sales data for Stats SALuce says that while signs of weakness did appear earlier this year, the full impact of the interest rate hikes and economic slowdown is yet to be felt.
Stats SA released the latest data on retail last week, showing a decline of 1.4% year-on-year in May 2023, with the largest contributors being general merchants (the largest part of the retail index, down 3.7%), and hardware, paint and glass retailers (down 8.7%).
Seasonally adjusted retail sales fell 0.7% in March, 0.2% in April and 0.7% in May.
In the three months ending in May 2023, retail sales declined by 1.5% compared to the three months ending in May 2022. The largest contributors to this decline were once again, general merchants (down 2.7%) and specialty store food, beverage and tobacco retailers (down 5.5%).
Vendors of textiles, clothing, footwear and leather goods were the only positive contributors to the sales data, growing 6%, which Loos attributes to this sector experiencing low 3% price inflation on its products.
Investec economist Lara Hoods says the BER’s quarterly retail trade survey shows that the strong performance of the semi-durable apparel and footwear sector compared to other commodities in the retail basket can be explained by several factors, including, “the divergence in inflation trends” and a rise in demand as people return to the office and travel and leisure activities resume.
“Finally, the social relief grant introduced in 2020 may have specifically boosted sales of low-priced clothing.”
However, despite a 6% rise in the textiles, apparel, footwear and leather goods sector, sentiment for retailers in general remains very weak, with confidence falling 14 points to 20 in the second quarter.
Electrification, or lack thereof, weighs on costs and reduces profitability as consumers come under mounting pressure, she says, citing BankservAfrica data which revealed real wage taken fell -8.8% year-on-year in May – “an all-time low”.
Luce adds that the real renewed decline in sales, following a post-lockdown recovery in 2021 and part of 2022 as economic life returns to normal, illustrates the emergence of severe economic headwinds.
With retail sales declining, the retail real estate sector is under increasing pressure.
“Weaker real retail sales keeps the pressure on retail malls and is likely to lead to a continued slowdown in growth in retail center trading density, as we have already seen in MSCI [index, which measures the performance of the large and mid-cap segments of the market] Numbers for the first quarter 2023″.
All five major shopping center categories—regional, regional, micro-regional, community and vibrant—showed slowing turnover growth in the first quarter of 2023, and lower sales in the second quarter add to concerns of a further slowdown.
Citing TPN tenant data, retail tenants in good standing with landlords in the first quarter were 73.4% but tenant payments performance is expected to deteriorate further in the second half of 2023.
This is likely to lead to a further increase in retail center vacancy rates, as four out of five major retail center size categories showed quarterly rises in vacancy rates in the first quarter.
Declining sales is not the only factor: the sector faces higher rates of municipal inflation and tariff increases while having to look for – read expensive – alternative energy supplies. DrM
