After the doom and gloom that heralded the start of the Covid-19 lockdown, there are some green shoots.
After plunging to a 29-year low of 11 in the second quarter, retailer confidence rose to 36 during the third quarter while wholesale confidence jumped to 33, according to retail trade survey results for Q3 released today by the Bureau for Economic Research (BER).
A reading of 36 indicates that less than four out of 10 respondents were satisfied with business conditions in the third quarter.
From such a low base, when retailers of most durable and semi-durable goods were non-operational and could not generate any income for a significant part of the second quarter, this improvement in sentiment simply reflects these specific retailers’ optimism about their ability to trade again, rather than a fundamental shift in the operating or macroeconomic environment, the report explains. “In fact, business conditions deteriorated across the entire retail sector given the bleak domestic backdrop, which was further exacerbated by the Covid-19-induced disruptions. “As a result, retailers have begun reconfiguring their business models for survival and adapting their operations to a poor business environment.”
Motor dealer confidence rebounded to 16 in the third quarter, after crashing to levels last experienced during the global financial crisis in the second quarter.
Looking at sales volumes, the report points out, it is quite evident that used car sales performed noticeably better than new passenger car sales in the third quarter. “This suggests that the current economic climate (i.e. suppressed income levels, job security and high new car prices) favours the used passenger car market. The price of used vehicles declined by 20% between May and July due to increased supply emanating from car repossessions as well as asset disposals by major car rental companies.”
The latest retail trade sales figures released by Stats SA point to a 9% contraction y-o-y in July 2020, the BER points out.
“Therefore, it is unsurprising that retailers are not expecting conditions to improve much further in the fourth quarter. The outlook for the retail sector remains gloomy, with a weakness in the balance sheets of households due to lost or reduced income, restrictive fiscal policy, labour market uncertainty as well as muted consumer confidence levels all likely to weigh on consumer spending over the coming months.”
What remains constant between the Q2 and Q3 business environment is the somewhat restricted trading hours and adherence to Covid-19 hygiene protocols – which continue to increase the operating costs of retailers, the report points out.
“Therefore, the overall Q3 BER survey of more than 700 retail stores, wholesalers and motor dealerships conducted online between 12 and 31 August simply reflects the changes in the business environment and how consumer spending adjusted following these changes.”