Clicks CEO paints grim picture of economic turnaround
Those hoping for a quick turnaround for the retail sector will be disappointed as the SA economy looks set to remain in the doldrums for at least the next couple of years, says Clicks CEO Vikesh Ramsunder.
Ramsunder, who replaced David Kneale at the start of 2019, said recently he does not see the economy recovering anytime soon. In fact, he believes it will remain in a precarious position in 2020 and beyond.
Ramsunder’s pessimism is somewhat surprising given that the health and beauty chain has been the standout performer in a struggling sector.
Where Clicks has pushed up profits — it reported a 6.2% rise in turnover to R15.24bn and an 11.3% increase in operating profit to R1.04bn for the half year to end-February — others have struggled, delivering flat earnings.
The results coming out of the sector were a direct consequence of the difficulty consumers were dealing with. Below inflation wage increase, hikes in fuel and interest rates have drained wallets over the past year.
Some in the retail sector have expressed hope that consumer sentiment would turn for the better if the May 8 general election provided the new government with a mandate to push through much needed changes, like ensuring that power utility Eskom was able to constantly supply electricity.Independent retail analyst Syd Vianello said Ramsunder was right to be wary about the sector’s prospects because the problems at Eskom loomed over the economy. “I don’t think he is wrong in his thinking.”Vianello said retailer growth was dependent on more people becoming employed, but this could not happen if Eskom was unable to ensure supply electricity as businesses would be hesitant to hire more people.Economist Mike Schussler agreed with Vianello about Eskom. He said even if the election provided a clear mandate, “it would still take time to sort out Eskom”.
The problems at Eskom had undermined SA’s efforts to bring down the unemployment rate, which had risen to a record high 27.7% in the fourth quarter of 2018.
Aside from high unemployment, the retailers have also had to deal with consumers having seen a rise in administered prices, like electricity, fuel and municipal rates.
The SA Reserve Bank’s latest quarterly bulletin underlined the difficulty consumers were dealing with. “Administered price inflation accelerated notably in 2018, as fuel price inflation almost doubled from an annual average of 7.8% in 2017 to 14.5% in 2018,” it said.
Schussler said though there was an uptick in wages since the beginning of 2019, it did little to offset the rise in what he called, “things we can not get out of”.
These “things” are on the increase. Electricity tariffs for instance, were scheduled to rise 9.1% for the 2019/2020 period, with further increases scheduled over the next few years. This week’s petrol price rise had also brought this rate close to record highs.
There were signs the pressure on the purses was changing consumer behaviour. Schussler said this could see speciality retailers, like those selling clothing and toys, take the strain, as people refocused spend on essential goods. “Everyone is in cost-saving mode.”
Although the prospects for the retail sector were not great, Wayne McCurrie of FNB Wealth and Investments said there were also reasons to be too optimistic. He said despite the pressure on South Africans, a change in consumer sentiment could boost prospects of retailers.
McCurrie said South Africans had done well to keep household debt under control, and if people felt some certainty about the direction of the country, they had some capacity to spend.
The Bank noted the prudence of local consumers when it comes to controlling debt. “For 2018 as a whole, the ratio of both household debt and debt service cost to disposable income decreased.”
McCurrie said that if people started going to the shops it could even trigger an economic recovery. “Corporates will start to spend money once people start spending more.”
McCurrie might be hopeful about a possible change in sentiment, but the latest measure of consumer confidence is not encouraging.
“The deterioration in consumer sentiment during the first quarter mirrors the drop in the Rand Merchant Bank-Bureau for Economic Research business confidence index, and points to dismal growth in consumer spending in the first half of 2019,” said the bureau.