By Brian Thomas

It’s been a long time since we have seen South African retailers talk about a positive outlook for the consumer in their trading updates. With the consumer having battled Covid-19, high interest rates, low wage growth, low gross domestic product growth and high inflation over the past five years or so.

It was encouraging to see Mr Price in their 22nd January update for the 13 weeks to December 28, 2024 make the following outlook statement. “The 2025 economic growth outlook for South Africa is anticipated to improve in comparison to 2024. A steadily improving consumer environment, aided by decreasing inflation and lower interest rates, continues to build a solid platform for growth in comparison to recent years.”

TFG on the rise or pension payouts and retail growth align

This was followed by TFG two days later in their update for the nine months ended December 28, said: “In South Africa, the outlook is positive, with a modest economic recovery expected for 2025. Sales in TFG Africa grew 14.6% for the three weeks ended January 18, 2025. TFG Africa expects to expand its store estate footprint by opening in excess of 100 new stores during the 2026 financial year, whilst we continue to rationalise our store portfolio to enhance return on capital employed.”

Perhaps the encouraging outlook on the consumer comes from the perspective of the most recent set of results which in both cases remained robust, as TFG demonstrated with their post year end commentary.

Mr Price indicated that their post December end sales continued at double digits. Perhaps it’s the impact of the Two-Pot System which SA Revenue Service estimated in November that R35 billion had been withdrawn from pension funds and many have assumed that this will be north of R40bn by the end of December.

Value retailers gain the edge

Interestingly when analysing the trading updates that we have seen so far from the discretionary retailers – there was not universal growth in spend, with Woolworths Fashion Beauty and Home (FBH) growing only 0.2% in the last eight weeks of 2024. They were hampered by stock that was late to arrive in the South African ports, a similar issue faced by AVI with their apparel and footwear segment (dominated by Spitz and Kurt Geiger) with sales down 7.3% over the six months ended December 2024. Truworths with low exposure to the value segment also reported a weak set of numbers with sales down 1.1% in the six months ended December.

Is there something to learn here? The divergence in trading performance could be due to different spending patterns between lower and higher income consumers. Perhaps it could be that the consumer has chosen to spend their two pot “windfall” on value as evidenced by Mr Price, which operates in the value segment and TFG through its exposure to JET, also a force to be reckoned with in the value space.

Pepkor, the latest of the retailers to provide an update and the value champion added to this theory with very strong sales growth of 17.8% in the first three weeks of January in addition to a very respectable double-digit growth rate in the final quarter of 2024.

Brian Thomas is a portfolio manager at Laurium Capital, part of the PPS Stable Growth Fund investment team

BUSINESS REPORT