High unemployment rates in South Africa and slow income growth have curbed household expenditure‚ which is already curtailed by soaring utility costs and rising debt.
The slowdown in unsecured lending‚ which gave retail sales a significant lift prior to last year‚ has been one of the major contributors to the decline in spending as consumers battle to repay loans and settle accounts.
The JSE general retailers index shed 3.71%‚ with Foschini Group down 3.47% to R108.11 and Truworths falling 8.11% to R85‚ the most in four years.
Drikus Combrinck‚ portfolio manager at PSG Konsult‚ said bad debts were a problem. "We know what Abil has been facing with their Ellerines (furniture) unit and JD Group. This will be the case with semidurable goods too‚ because a large portion of these companies' sales are credit and they will also feel high bad debt ratios‚" he said.
Foschini‚ which sells about 60% on credit‚ reported a 3.8% rise in diluted headline earnings per share to 411.2c for the half-year ended September 30. Sales rose 9% to R6.7bn.
CEO Doug Murray said the past six months‚ which were marked by the difficult consumer credit cycle - saw growth of the group's cash sales‚ which were up 12.7%. "We curtailed our credit growth. We had to put in more risk control and that impacts the acceptance rate of new accounts.
"We are obviously careful of the credit we grant and that has an obvious knock-back onto our credit turnover. But that doesn't mean we're not granting credit. It's a tough market ... for the next six months we don't see it being any different‚" Murray he said.
The group's debtors' book‚ which amounts to R5.5bn‚ increased by 5.7%. Bad debt grew to 11.4% from 10.5% at the year-end. Foschini Group‚ which trades out of 116 stores outside South Africa‚ said sales in the rest of Africa grew 25% and 15.2% on a same-store basis.
By 2018‚ it wants to have 300 stores in the rest of Africa.
Noah Capital Markets retail analyst Roger Tejwani said credit retail was having a pretty hard time. "Foschini's cost base came under pressure. They are growing their sales a little bit quicker than Truworths - that is fairly encouraging‚" he said.
The group's consumer finance business RCS received an unsolicited expression of interest in August and Murray said the interested party had asked for an extension.
Meanwhile‚ Truworths said sales for the 18 weeks to November 3 rose 7% to R3.5bn‚ compared with a 15.9% gain a year earlier. Credit sales comprised 71% of sales‚ with like-for-like store sales rising 2%.
"For Truworths‚ credit is a problem and competition id increasing. Their costs are growing too aggressively ... they're putting too much space in and they've still got a lazy balance sheet. Inflation is also hurting them‚ real volumes are down‚" Tejwani said.
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