South Africa’s Economy: The Big Picture

South Africa is facing what is arguably one of its most turbulent economic periods in modern history. Two credit rating agencies downgraded the country to ‘junk status’ after a controversial cabinet reshuffle by president Jacob Zuma and the subsequent firing of finance minister Pravin Gordhan. The ripple effect has been felt throughout the foreign investment sector, with obvious effects on the cost of consumer goods, imports and share prices. Recovery will be slow, and set against a backdrop of fierce battles between opposing parties within the South African government. Research analyst firm Nomura has cut South Africa’s 2017 GDP forecast from 1.1% to just 0.2%, and the risks posed by political upheaval remain real. So where does this leave retail?

A Closer Look At The Retail Sector

Even when underpinned by fluctuating periods of recession and recovery, the retail sector in South Africa has had a good run between 2010 and 2016, outperforming overall economic growth. Many would argue that this trend will not however survive into 2017, due to very real political instabilities. Business Day forecasted a period of underperformance for 2017 with a slight upturn later in 2017 that will not be significant enough to offset the initial downturn. For shopping centres, this means a higher vacancy rate and lower retail property capital growth. But all is not lost. Despite South Africa’s trying times, international investors like Actis have bought stakes in retailers like Coricraft, Tekkie Town and Food Lover’s Market. According to fin24: “Real household consumption expenditure growth in 2017 is forecast to amount to 1.7% compared with the estimated growth of 1.2% – recorded in 2016, according to research undertaken by Christo Luüs of Ecoquant.” Further insights by fin24 reveal that households are spending more on semi-durable goods like clothing and footwear while durable goods like furniture and vehicles are in even greater demand. For some, South Africa’s position in the retail space can be referred to as “cautiously confident.” Four trends have come to characterize the retail sector in South Africa.

1: Online Retail Takes Centrestage

According to the Digital Evolution Index, developed by MasterCard in collaboration with Tufts University in Massachusetts, South Africa is ranked number 33 for digital readiness – which is measured by a country’s capability to support and encourage digital commerce and payments. E-commerce giant, for example has 18 departments, 9 million products and 9 flexible payment methods. Its site sees close to 9 million visits per month and it is currently ranked number 3621 in the world. E-commerce sites are mushrooming throughout the country, providing customers with a more secure and convenient way to shop that was previously imagined by the modern consumer. This trend will continue to boost retail growth going into the new year.

2: The Health Movement Boosts Consumer Consciousness

With the global move towards more environmentally conscious living, the trend towards healthier living is also on the rise. Greater awareness around product ingredients and manufacturing processes will spur growth in niche areas. South Africans are changing their lifestyles, and are growing more reluctant to buy high carb/high fat products in favour of organic foods and healthier alternatives. Items such as free range eggs and meat that has been produced from grass fed cattle, are in higher demand. This health and wellbeing trend extends to the purchasing of fitness contracts for activities like yoga and pilates. Overall, the sector is growing steadily with consumers becoming more health and earth conscious.

3: Globalisation Leads to Diversification

The past year has seen an influx in international – specifically American – brands entering the country. H&M, Dunkin’ Donuts, Baskin Robbins, Hamleys and Zara are prominent examples. Along with the trend towards the local production of goods, the globalistion of the retail sector has led to the diversification of goods and with it, an increase in consumer choice. International stores are becoming a key part of South Africa’s shopping centre ecosystem. Where before, South African consumers had to travel overseas to shop specific brands, these brands are now readily available in South Africa and are contributing to the country’s own GDP growth in a very direct way.

4: Experiential Retail On the Rise

Today’s consumer requires shopping centres to be more than just retail destinations – they expect retail experiences. Successful centres need to entertain, entice and excite shoppers. What this has meant in the South African space is the increased acquisition of experiential outlets such as gaming stands, interactive product promotions, engaging displays and hands-on product experiences. A more holistically engaging retail experience leads to more time spent in the shopping centre, and ultimately more retail spend. It’s a winning formula. This trend has led to a rise in the popularity of lifestyle centres throughout South Africa.

The impact of South Africa’s current political climate on the retail sector remains to be seen. Over time, the country’s retail environment has proven itself to be resilient – even in periods of economic downturn. Opinions as to whether this trend will continue throughout 2017 however, remain divided.

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