Industry news

How FULL will this year’s Xmas stocking be?

With daily headline reports of worldwide financial, retailing and stock exchange disasters, it would indeed be a brave (or illiterate) trader that will be looking forward to a bumper Christmas holiday season this year.

That is perhaps why people in the lifestyle, sport and outdoor industries look furtively over their shoulders and almost whisper when they confess “trading is actually going OK…”

From reading, listening and watching TV we know that even one of the UK’s leading retail groups, JJB Sports, are in trouble, that trading in the US is such a shambles that terms like growth is reserved for things like potatoes, and that most retailers in Europe have given up hope of hearing any good news again.

YET, when listening to many SA retailers and suppliers, we hear an almost apologetic sense of optimism. It is almost as if people are saying: I know its supposed to be going badly, but…

Sure, we know: during the past year, up to September, 75 retail stores on our database closed. Those 75 store closures had a spiralling effect with staff out of work, suppliers losing outlets and debts unpaid.

BUT during this period we added 236 new stores to our database. The stores that closed constitute about 2% of the 3540 retailers currently on our mailing list, the new stores add 7% to the list. A gain of 5%.

In the previous jittery retail period after the dramatic plunge of the Rand in 2000/1 (remember: R12/$ and R18/pound), 54 retail stores on our mailing list closed (2.3% of the 2267 retailers on the mailing list). BUT, we only added 13 new retailers during 2001. Therefore, from our perspective, the industry was harder hit by the previous economic hiccup (since the world’s cleverest economist are still arguing about whether we should call it a recession or depression or just straight investor panic, we shall refrain from name calling).

We hear that the economists are saying that we can thank the Credit Control Act and exchange controls for the fact that SA was not as badly hit as Europe and the US by this worldwide credit panic. But, since our industry is not exactly a credit-reliant industry, perhaps the answer for the guarded optimism lies elsewhere.

Perhaps the nature of the industry can be credited for the fact that all retailers are not closing and suppliers are not in sackcloth and ashes:

» The typical leisure industry customer falls in the higher LSM group (after all, if you’re fighting for survival, a new pair of branded shoes or the next squash game are not really priorities);
» Scaling down or tightening the belt in the higher LSM groups could mean cutting down on overseas trips and rather going on a seaside holiday, or investing in a fishing boat, canoe or mountain bike;
» While Europe has a shrinking and ageing leisure market, SA has a growing Black Diamond market (defined as wealthy, well educated, ambitious and credit-worthy) that is only now starting to enjoy the luxury of leisure spending... or so the UCT Unilever research group tells us. Sure, this group is also highly debt-trapped, but if Prof. John Simpson and his team are correct and the 2.6-m Black Diamonds are growing by 30% per year, there are 750 000 wealthy, well-educated, ambitious and credit-worthy new consumers joining the market every year;
» SRSA and the provincial sporting structures are heavily investing in bringing sport to communities who never had the opportunity to participate in leisure activities — whether through mass participation programmes that train unemployed youths to become community sport facilitators, or sporting clusters that allow communities to band together to share facilities and expertise. These efforts might not win SA medals, but they are encouraging many people, who would otherwise not have the opportunity, to become involved in sport and leisure activities;
» School sport is growing in communities that previously did not have access.

Sure, when we look at the overall economic picture, it is enough to send the shivers up any spine. Payment defaults by debtors have been escalating sharply for almost two years, and there appeared to be no let-up in this trend, an economist said. Smaller SA businesses seem to have borne the brunt. While 6% fewer companies closed during July this year than the previous year, 4% more cc’s closed during that month. In the first seven months of this year 31% more smaller businesses in SA closed than the previous year.

Even though most sport and outdoor retailers do not offer credit, customers’ personal debt does impact on their disposable income. “On average South Africans spend 80% of their disposable income on servicing their debt, with an average consumer owing as many as eight credit providers at any one time,” says Dr. Tjaart van der Walt, CEO of the National Debt Mediation Association (NDMA). (Referring a customer for debt counselling is one way that a business can recoup losses).

Overall SA retail sales dropped 3.6% in July, compared to the same month last year, following a drop of 3.4% in the previous three months, reports Statistics SA.

June sales of textile, clothing and footwear, however, grew 14.3% (slightly down from the 16.8% growth in June 2007). As the financial results from some of the big chains showed last year, sporting sales outperformed sales of clothing and footwear, and it will be interesting to see if this pattern will be repeated when interim results are published.

To add to the retailers’ woes, the cost of stock has risen — in the sports and leisure industries this was driven by a worldwide increase in steel and rubber prices, while the higher oil price increased transport costs.

This has, however, had a beneficial spin-off for local sport and outdoor goods manufacturers — several of them report a marked increase in orders.

This holiday season will be critical for many in the industry and whatever you have to fill the Xmas stocking, could be crucial to making a good profit going into the new year.