These bullish projections are the findings of an annual Christmas sales overview conducted by the University of Stellenbosch's Bureau of Economic Research (BER), on behalf of global audit and business advisory firm Ernst & Young.
According to feedback from 500 retailers sampled in the annual survey, total Christmas sales in 2004 are likely to be the best in two decades. The retailers surveyed covered all sectors and provinces.
The survey results found that Christmas sales in 2003 were lower compared to 2002, and this is confirmed by Stats SA whose results indicated that retail sales expanded by only 10.2% during the fourth quarter of 2003 compared to 13,4% during the fourth quarter of 2002. (The fourth quarter average is taken to indicate Christmas sales, as Christmas sales usually start in October and reach a high point in December.)
Ernst & Young senior executive partner for Retail and Consumer Products (R&CP), Ian Catt, said sales revenue of the furniture, appliances and electronic equipment and the clothing and footwear categories increased at higher rates, as higher unit sales more than made up for lower price increases and falling prices respectively.
"However, the rebound in unit sales of the food and beverages categories - which make up the largest share of total retail sales - did not fully compensate for the much lower price increase of food, causing the growth in overall Christmas sales revenue to be somewhat lower than during the previous year," said Catt.
He noted that the furniture, electronic equipment appliance and food and beverage retailers surveyed expected strong Christmas sales comparable to last year's. Also, the clothing and footwear retailers forecast to surpass sales they generated in 2003.
Catt added that the retail sector was benefiting from a number of positive factors such as successive cuts in personal income tax, increased investment income and the substantial decline in nominal interest rates to their lowest level since the mid-1980's.
He continued that official data from Stats SA already points to a bumper season for the retail sector as total retail sales have expanded 12.8% during the first seven months of 2004 compared to the same period last year.
"So far, higher income earners (those earning above R4 500 per month) have been very disciplined regarding credit spending. Although they have taken on more debt, it was predominantly mortgage debt.
"Given the unprecedented upsurge in residential building activity and property prices, the bulk of these funds were therefore used to invest in property rather than to spend on consumer goods and services," he said.
Catt said declining food inflation, coupled with the increasing number of social grant beneficiaries, has improved the financial position of low-income earners (those earning less than R4 500 per month). "Looking forward, this group will be the primary beneficiaries of a rise in employment," Catt said.
BER senior economist, George Kershoff, expressed confidence that buoyant consumer spending is anchored on sound structural changes rather than a fleeting cyclical recovery.
"Although it is impossible to separate the cyclical from the structural factors, we are of the opinion that a structural break has occurred, which will lift South Africa on to a higher growth path. Although not as spectacular as those of some other emerging countries, this higher average growth rate will be a clear break from the past. Furthermore, this growth will be sustainable and its benefits will spread more equally across society," said Kershoff.
He added: "To most of us, this will be new. The last time South Africa experienced something similar was during the roaring sixties and seventies.
We foresee higher average economic growth over the medium term partly due to an improvement in the labour absorption capacity of the economy. More job opportunities tend to go with higher economic growth, but the building and construction sector, the tourism sector, as well as the social and community sector (such as child, frail and elderly care) could also potentially absorb a large number of low skilled people in the future."
Reaffirming Kershoff's optimism, Catt concludes: "We have become so used to a big hangover after a period of strong sales that it is difficult to imagine that there is only going to be a mild headache this time. Not only are the present strong sales likely to continue, but the eventual slowdown will be modest by South African standards."
