Retail trading environment

SOUTH AFRICA: TRUWORTHS

While there were no hard lockdowns in South Africa during the reporting period, intermittent COVID-19-related restrictions adversely impacted economic growth, employment, consumer confidence and spending, as well as retail foot traffic.

Although the second and third waves of infection in December 2020/ January 2021 and in June/July 2021 respectively did not lead to the forced closure of stores, the implementation of lockdown restrictions had an immediate effect on Truworths’ sales and account payments as customers chose to avoid shopping centres to limit the risk of infection. It is encouraging that once lockdown limitations were relaxed, customers resumed their normal shopping patterns.

The credit market has proven to be resilient in the post-hard lockdown environment. The TransUnion Consumer Credit Index, which measures the credit health of consumers, reached a high of 62 index points for the first quarter of calendar 2021 and remains at a robust 59 index points for the second quarter, rebounding from 47 points and 59 points in the third and fourth quarters respectively of calendar 2020. In this environment the Truworths portfolio showed a stronger-than-expected recovery, with certain key account metrics returning to pre-COVID-19 levels by June 2021.

Lower debt servicing costs have contributed to the recovery in the credit market as the central bank’s benchmark repo rate was maintained at its record-low level of 3.5% throughout the Group’s 2021 financial period.

Consumer spending, however, remains under pressure as sharp fuel and electricity price hikes and higher food costs continue to erode disposable income. The state of the consumer economy is reflected in the consumer confidence index which measured -13 points in the second quarter of calendar 2021. Although this is far below the average index of 2 points since 1994, it is significantly higher than the levels reported in the second and third quarters of calendar 2020 during the economic hardship of the pandemic. Confidence levels are highest among middle-income earners, the core target market of Truworths, at -9 points, followed by high-income earners at -18 and low-income earners at -22.

The COVID-19 pandemic has had a devastating impact on South Africa’s labour market as the unemployment rate reached 34.4% in the quarter to June 2021, the highest jobless rate since comparable data has been maintained from 2008. There are currently more than 7.8 million unemployed South Africans and the prospects for sustainable job creation in the short to medium term are limited in the prevailing low economic growth environment in the country.

Renewed power supply interruptions from the national electricity utility Eskom continue to have a serious impact across most sectors of the economy. The country experienced intensive load shedding in the first half of the 2021 calendar year, with 650 hours of scheduled power outages (source: Council for Scientific and Industrial Research). Load shedding continues to disrupt trade in Truworths’ South African stores, with landlords being slow to install generators in malls. Currently only half of the top 100 stores in terms of sales are linked to alternative power supplies.

The wave of civil unrest that spread across parts of KwaZulu-Natal and Gauteng in July, shortly after the end of the Group’s reporting period, had a devastating impact on the economy and on the retail sector in particular. Over 3 000 retail outlets were vandalised and looted, including 57 across the Truworths store portfolio. The rioting had a profound impact on lives and livelihoods, while the significant financial loss in terms of stock, damage to property and lost opportunities will further slow the country’s economic recovery. By 28 August 2021, 51 of the 57 affected Truworths stores had been reopened and are fully operational.

Trading conditions in the Group’s seven other countries of operation in Africa, where Truworths has a combined store base of 35, have been particularly challenging owing to the general weakening of the domestic economies.