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What Next? Are we ready for a third Covid-19 wave & another lockdown ?

The trade sector experienced a tough start to the new year, and much of the performance of the sector still largely reflects a Covid-19 narrative, the latest retail trade survey by the Bureau for Economic Research (BER) shows.

The survey took place from 18 January to 1 March 2021, with most of the responses received during the last two weeks of February.

It shows that in the first quarter of 2021, retailer confidence declined by 13 index points to 37.

This was to be expected, considering that much of the momentum gained in the final quarter of last year was from pent-up demand for alcohol, anticipated festive season sales, and the vital social grant top ups, which all petered out by the first quarter, the BER said.

Furthermore, the sector also benefitted from a significant uptick in the durable goods category in the fourth quarter, as many people still worked from home, or home-schooled their children, and continued to effect home improvements and purchase home office equipment and furniture.

However, this trend reversed in the first quarter of 2021. Despite the decline in 21Q1, overall retailer confidence levels remain in line with the long-term average of 38.

“Looking ahead into the second quarter, it is discouraging that the overall retail sector, except for the nondurable retailers, is pessimistic about business conditions and sales volumes,” said the BER.

The group said that significant risks lie ahead with the prospect of a third wave in South Africa looming amid a very slow vaccine rollout.

Renewed lockdown restrictions to curb the spread of the virus will certainly harm the sector, the BER said.

“Furthermore, given the hikes in fuel and electricity prices, rising food inflation, below-inflation adjustments to social grants and the expiration of the SRD grant and TERS programme at the end of April, there is a real risk that the household finances of low-income consumers could come under significant pressure. This could hurt non-durable goods sales volumes in particular.”

The BER said that the weak labour market as well as the power supply crisis at Eskom also do not bode well for the trade sector in general.

“In all, given that the pent-up demand for durable goods has now mostly been met, coupled with some warning bells for the hitherto robust non-durable goods sector, momentum in the second quarter will in all likelihood depend on the performance of semi-durable goods retailers, particularly through the sale of winter clothing and school uniforms.”

The BER said that the outlook for the motor trade sector is slightly more encouraging, with new vehicle dealers expecting both business conditions and sales volumes to improve notably in the second quarter.

“Much of the optimism is fuelled by the prospect of a further recovery in the domestic economy and more people returning to work, which could boost sales volumes given that interest rates remain low,” it said.

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