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Retailers must tailor their business to accommodate customer needs
![Image credit:](https://biz-file.com/c/1602/329082.jpg)
Festive season updates from Woolworths, Truworths and The Foschini Group (TFG) were not as grim as expected, with only Mr Price disappointing.
Still, currency-induced price increases, rising inflation and tightening monetary policy is expected to weigh on spending. According to Capital Economics Africa economist John Ashbourne, strong retail sales figures for November suggest the economy probably did not contract in the fourth quarter, but growth remains fragile, and risks are growing. "We have long argued that growth based on consumer spending is unsustainable given low labour-force participation, high levels of private sector debt and gloomy consumer confidence," he said.
Clothing sales have in recent years beaten the pants off other retail categories, spurred largely by SA's strong mall culture and consumers' eagerness to show off their new-found middle-class status. However, spending has become more pragmatic.
"People do buy clothes in tough times, but they become more selective. Retailers have (to get) their merchandising right. There's no room for error: if you get things like this wrong ... you're in deep trouble," Absa Investments analyst Chris Gilmour said on Friday.
The expansion by cash-focused foreign retailers has given more choice to consumers and also changed the dynamic of a market once predominantly driven by a credit model. Overextended consumers are less likely to use credit for purchases, which puts cash retailers in better stead when household budgets come under strain.
Unlike TFG, which has been targeting shoppers who buy with cash rather than store credit, Truworths has stuck to its roots as largely a credit player. The group has, however, moved to adjust its pricing architecture to attract customers across the living standards measure spectrum after criticism from analysts that it was losing market share to Zara, Cotton On and Topshop, whose styling and pricing have found favour with shoppers.
SA's fashion retailers' recent offshore buyouts will be somewhat of a buffer. Until two years ago, rest-of-Africa expansion was flavour of the month, but high rentals, poor infrastructure and red tape have hampered growth and sent retailers such as Woolworths, Truworths, and TFG into developed markets.
The move lends scale and a rand hedge. "Retailers who have (made offshore buyouts) were clever... They all got in before the rand took the big nosedive," Gilmour said.
Source: I-Net Bridge
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