Consumer spending in the Group's major markets of South Africa (SA) and the United Kingdom (UK) has remained under pressure over the past year due to high levels of inflation and increased debt servicing costs as both the SA Reserve Bank and the Bank of England tightened lending rates further to curb inflation, while economic growth has been muted across both regions.


Unprecedented levels of electricity load shedding together with higher food, electricity and borrowing costs increased pressure on consumers' disposable income. Social grants, tax relief granted in the 2023 parliamentary budget and the post-COVID-19 recovery in the tourism and hospitality sectors provided limited support to consumer spending.

The weak macro environment was compounded by sporadic civil disruption, social instability and political uncertainty in the build up to the national elections in 2024. Strained geo-diplomacy contributed to the depreciation of the Rand against major currencies during the year, with a 14.6% weakening against the US dollar reflecting the economic and political risks facing the country as well as the impact of load shedding on the domestic economy.

South Africa continued to be severely impacted by the energy crisis, with load shedding intensifying from September 2022 and peaking in April and May 2023. The quantum of power shed by the national electricity utility, Eskom, in the entire calendar year 2022, was exceeded within the first five months of 2023.

While these persistent power supply cuts pose a serious disruption to trading, the consequences of load shedding on the economy and the retail sector are far reaching and damaging, impacting economic growth, job creation and longer-term prosperity. Refer to the Chief Executive Officer's report for details on the Group's response to load shedding and investment to limit the impact on trading.

After reaching a 13-year high of 7.8% in July 2022, inflation eased to a 19-month low of 5.4% for June 2023 (June 2022: 7.4%) and encouragingly reverted to within the SA Reserve Bank's 3% – 6% target range. Food and energy are the main drivers of cost pressure and continue to erode disposable income, with food inflation measuring 11.0% for June 2023 and Eskom electricity prices being increased by 18.65% from April 2023.

Rising interest rates have compounded the financial pressure on consumers. The SA Reserve Bank raised its benchmark repo rate 10 consecutive times between November 2021 and May 2023, increasing rates by 475 basis points to a 14-year high of 8.25%, mainly in response to rising inflation and the depreciating currency. Interest rates increased by 350 basis points in the Group's 2023 reporting period.

While the Bank held interest rates at 8.25% at its July and September 2023 monetary policy committee meetings, this does not signal the end of the tightening cycle and further hikes are possible in the year ahead.

The TransUnion Consumer Credit Index, which measures the credit health of South African consumers, declined sharply in the first half of 2023 and fell to an all-time low of 39 index points in the second quarter of calendar 2023, down from 49 points a year earlier. This reflects the deterioration in household credit health as higher living costs have taken their toll on consumers' domestic finances. Interestingly, the ratio of household debt to annual income at 61.8% is the lowest since the global financial crisis of 2008.

The depressed state of the economy is reflected in the FNB/BER Consumer Confidence Index declining to its second lowest ever level of -25 points in the second quarter of 2023, highlighting consumer concerns for their personal finances and the country's economic prospects.

The labour market has not been able to recover in the country's low growth environment. The unemployment rate measured 32.6% for the second quarter of 2023 (Q2 2022: 33.9%) and remains well above pre-COVID-19 levels, with 7.9 million South Africans unemployed. The prospects for sustainable job creation in the short to medium-term are limited given the subdued economic growth in the country.


The UK retail sector continued to encounter headwinds from pressure on household income due to high levels of inflation and escalating interest rates. The Bank of England has raised interest rates 14 times since December 2021 to limit inflation, bringing borrowing costs to a 15-year high of 5.25% in August 2023.

While inflation has moderated from its multi-year high level to 7.9% at June 2023 due to lower fuel and energy costs, the cost-of-living continues to outpace wage increases. The Bank expects inflation to fall to around 5% by the end of the 2023 calendar year, still well above the target of 2%.

The GfK consumer confidence indicator has recovered to -24 points in June 2023 from a record low of -41 points a year earlier, despite inflationary pressures and higher interest rates weighing on sentiment.

The UK retail market continued its post-pandemic recovery and experienced a significant reduction in net store closures, improving from 10 059 net closures in 2021 to 3 627 in 2022 (source: Local Data Company).

The key factors expected to influence the retail trading environment in South Africa and the United Kingdom in the 2024 financial period are featured in the Review of 2023 and Outlook for 2024 and in the Chief Executive Officer's report.