2016: The tale of two halves
By Patrick Ntshalintshali, Portfolio Manager and Phomolo Rabana, Analyst, Perpetua Investment Managers
We share in this commentary what we have learnt from the recent trading updates by the SA retailers
Introduction
Since the start of 2015, we had been cautioning our clients about the imminent tough headwinds in the South African private consumption and retailing environments. We identified the following potential fundamental negative impacts:
- A tough macro-economic backdrop in general, which had started in prior years (low GDP growth, rising inflation, interest rates hikes, poor employment, stricter credit, etc.)
- Rising competition in the industry, more specifically the entry and expansion of new international retailers (H&M, Cotton On, Zara etc.) in the apparel space stamping their presence in this market.
- Difficult high revenue and earnings base for retailers and slower store expansion trend.
- Stricter credit granting by banks and introduction of tighter Credit Affordability tests by National Credit Regulator in September 2015.
- Sharp import price increases post weaker local currency in 2015.
- Low consumer confidence.
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