Surveys and data show that, after months of lockdown, South African consumers are reaching breaking point.
As pressure mounts on consumers – from unemployment, pay-cuts, and loss of income – discretionary spending is declining. Sales of durable goods and semi-durable goods such as vehicles, furniture, household appliances, and clothing are on the decline.
Nearly two thirds of consumers (64%) surveyed by Transunion said that they were adjusting their household budgets by cutting back on discretionary spending. NAAMSA data for May 2020 shows new vehicles sales have plummeted in comparison to May 2019. And a survey by Private Property showed that nearly 60% of tenants are considering moving to more affordable accommodation.
IRR analysts say the figures suggest a shift in the economy away from luxuries and durables to more basic necessities until conditions improve. Businesses will have to be more aware of how to cater for poorer South Africans.
IRR analysts point out that household consumption expenditure as a proportion of GDP stood at 60% in 2019, indicating that the South African economy is heavily reliant on this expenditure.
Even before the pandemic, households were under severe pressure, with real GDP per capita having steadily declined since 2015. Covid-19 and the nationwide lockdown have accelerated the country’s economic deterioration, with some economists estimating a decline of GDP growth by 10% this year. A few million people are also expected to lose their jobs by the end of 2020.
These factors, analysts say, have an impact on consumer confidence. Last month, the figure cited for consumer confidence was -33 (a record low).
Consumers are also struggling to cope with servicing debts, with some resorting to borrowing from friends or family, delving into their savings or considering taking payment holidays. South Africans were an already highly indebted population with a low savings rate. The proportion of savings to disposable income has been in negative territory since 2006, while debt to disposable income remained above 70% over this period.
Analysts say that while the Reserve Bank’s reduction of the repo rate was intended to provide debt relief to cash-strapped consumers until the worst of the crisis had passed, this could discourage savings.
Some sectors are expected to do well during the crisis. According to job search engine, Adzuna, the industries that have shown growth or minimal declines in job advertisements include consultancy, social work, maintenance, engineering, and IT categories.
Also, businesses with a well-established online presence are well positioned to weather the Covid-19 storm.
According to digitally driven marketing and advertising agency, Rogerwilco, market research company ovatoyou, and certified customer experience professional, Julia Ahlfeldt, around a third of consumers polled bought groceries online before the arrival of Covid-19, while 15% bought groceries online for the first time during the lockdown and 22% indicated that they would make greater use of online channels to buy groceries in the future.
Although online banking was firmly established among those polled, 27% indicated that they would make greater use of online and app-based banking in the future. Around a fifth (21%) indicated that they would use online channels more in the future for fitness and educational activities.
However, analysts say, cutting the repo rate to record lows, UIF pay-outs and other Covid-19 relief funding in recent months will only have a marginally positive impact on consumers, and that more substantive reforms are needed to generate investment and job growth.
Selling defunct state-owned enterprises and removing excessive regulatory burdens on small businesses could help boost consumer confidence.