37 of 2023

                                                                                                          

                               Newsletter No 37/22 September 2023                              

                  

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July retail sales shrink as consumers struggle

By Thuletho Zwane

Tighter monetary conditions lead to the eighth consecutive fall in retail activity

Retail trade shrank 1.8% from a year earlier in July, matching the downturn observed in June — and worse than market forecasts of a 1.2% fall — Stats SA data showed on Wednesday.

It is the eighth consecutive month of decreases in retail activity, mainly attributed to the effect of tighter monetary conditions, particularly noticeable in general dealers and retailers in hardware, paint and glass categories.

The July retail sales figures provide additional clues about activity in the domestic trade sector in quarter three.

Stats SA data shows that five of the seven retail categories declined year on year. The textiles, clothing, footwear and leather goods sector was one of only two segments that rose on an annual basis, increasing 7.1% and adding 1.2 percentage points to the headline outcome. June’s increase was 5.5%.

On the other hand the general dealers’ category, which makes up the largest portion of the retail index, fell 1.7 percentage points from the headline reading on the back of an annual contraction of 4.1%.

FNB economists said that excluding the disruptions induced by Covid-19, this marks the longest streak of volume decline since the global financial crisis, when losses extended for six consecutive quarters.

“This trend is indicative of the challenging economic climate characterised by high inflation, subdued wage growth and suppressed consumer sentiment,” FNB said.

According to FNB, retail goods inflation surpassed headline inflation since January 2023, partly due to retailers recovering higher operational costs associated with investments in backup energy.

“However, given the weak demand conditions, it is unlikely that retailers have been able to fully pass on these costs to consumers,” FNB chief economist Mamello Matikinca-Ngwenya said. “This could result in retail price growth remaining relatively high even as overall inflation slows towards the target.”

She added that while employment data indicates a sustained but prolonged recovery in the labour market, unemployment remains high and wage growth lags inflation.

GDP data showed that compensation of employees — the total wage bill — increased 5% year on year in the second quarter, lower than 6.2% headline inflation during the same period.

All these factors suggest reduced purchasing power for most consumers, she said.

Investec economist Lara Hodes said that despite a deceleration in inflation, which has offered some reprieve, consumers remain financially constrained by elevated living costs and high interest rates, which continue to weigh heavily on the indebted.

Hodes said confidence picked up among retailers in the third quarter following the second quarter plunge. “However, it remains below the long-term average.”

She said retailers continue to face a number of operational challenges, notably load-shedding, which increased in intensity again in July after easing somewhat in June.  

Changes urged in new procurement bill

By Khulekani Magubane

The Zondo commission of inquiry, which was chaired by chief justice Raymond Zondo, recommended an overhaul of the public procurement system to prevent future state capture. Picture: Sharon Seretlo

Public Procurement Bill faces tough scrutiny in parliamentary hearings

The Zondo commission of inquiry, which was chaired by chief justice Raymond Zondo, recommended an overhaul of the public procurement system to prevent future state capture. Picture: SHARON SERETLO

At parliamentary hearings on the Public Procurement Bill this week, one province pushed back at the planned centralisation of the procurement system, warning it could affect service delivery.

Sanele Khomo, a former chief administration officer for demand and acquisitions in the KwaZulu-Natal provincial treasury, likened plans by the National Treasury to create a centralised procurement office to a “hand-holding exercise”.

“The bill itself does seem to create a lot of hand-holding exercises as provincial treasuries are not in a position to make determinations themselves. There are things that the bill should let go of as the provincial treasuries are equally capable. If a provincial treasury is of the view that a determination by an institution does not align with the act, that provincial treasury can review it,” he said.

Khomo, who is now head of supply chain management at uMngeni local municipality, was making submissions to the standing committee on finance’s hearings on the contentious bill. Nonprofit organisations, organised labour and anti-corruption watchdogs also made presentations.

The bill was drawn up in response to the Zondo commission of inquiry into state capture, which recommended an overhaul of public procurement to prevent corruption.

It proposes the establishment of a public procurement office (PPO), which would have the final word on the awarding of tenders. The state spends R900bn on procurement.

The PPO would be empowered to determine how the public, civil society and media access information to scrutinise procurement decisions. It would also house a tribunal appointed by the finance minister to adjudicate tender disputes.

Another core aim of the proposed legislation is to deal with a Constitutional Court ruling that invalidated regulations made under the Preferential Procurement Policy Framework Act, specifically concerning the tender scoring system, which allocates 80 points for price and 20 for B-BBEE status.

The draft bill gives preference to small enterprises and those in townships, rural or underdeveloped areas, and to black people, women, young people and those with disabilities. Preference thresholds would be governed by regulations determined by the minister, while state organs would have to develop their own procurement policies.

Khomo advised that public procurement offices be established at provincial treasury level for better co-ordination of procurement processes.

“This can assist in ensuring that there is a structured approach from national to provincial treasuries in dealing with matters relating to public procurement. Since the act delegates some of the powers to provincial treasuries, the act must also establish a provincial public procurement office to handle provincial scale matters,” he said.

The director for governance and risk at the department of defence, Fikile Khumalo, said they needed more clarity on the process of securing exemptions on the procurement of material related to national security, beyond the finance minister’s discretion.

“Some of the things the department procures are sensitive due to national security, so the department appreciates the provision for exemptions,” she said.

The bill says the minister of finance may exempt a procuring institution from any provision of the act if national security “could reasonably be expected to be compromised”.

Khumalo said the department was also not clear on the extent to which the bill enforces local procurement as some goods and services procured by the defence forces could not be found locally.

The South African Institute of Chartered Accountants executive for public sector and enabling competencies, Natashia Soopal, said noncompliance with procurement guidelines often led to overpriced goods and services.

“The bill should not be considered in isolation as legislation that ensures processes are followed. It should be looked at in conjunction with other things, like the resources available in procurement departments, ethical guidelines and other legislation and governance.”

Soopal said the bill should include additional responsibilities for procuring institutions, including consequence management when there is noncompliance, and processes to manage the procurement process to receive proper goods and services.

“Suppliers are not held accountable and they rotate from one department or entity to the next. It has become important for procuring institutions to ensure that they receive quality goods and services and that the guidelines are followed.

“The bill should incorporate skills and technical requirement units. The responsibility should be included for the procuring institution to ensure that the required skills and competency are present from suppliers,” Soopal said.

The hearings on Tuesday and Wednesday underscored two key issues: the need to address the procurement weaknesses that allowed years of state capture; and deindustrialisation, which business groups say can be reversed using the government procurement system.

Herman Pillay of the Apparel and Textile Association of South Africa recommended three changes to the bill: that local manufacturing provisions in tenders are considered pre-qualification criteria, not just a preference; that the national government makes preferential guidelines firm and binding; and that the bill is explicitly against corruption.

“Bidders will still be able to win if they generate enough points from other preferences. This is the case in sectors that have the potential to revive our manufacturing base. If the bill gives local manufacturing and local content the power to be pre-qualified, this could be used to create jobs.”

Pillay said 12,000 jobs and R6bn could be lost if the clothing, textile, footwear and leather sectors were not assisted, and many enterprises owned by black people, youth, rural citizens and women would face a risk of closure.

Corruption Watch’s head of legal and investigations, Nicki Van ‘t Riet, said the Constitutional Court determined that after the damage wrought by state capture, procurement should be done in a transparent, efficient and cost-effective manner.

“The bill must have the economic transformation of South Africa as its driving purpose. It must achieve open and transparent procurement where corruption is prevented. While promoting B-BBEE, it must prevent fronting and promote fairness and access to information to the public. Unfortunately, in its current state, the bill does not meet these objectives.”

Van ‘t Riet said Corruption Watch supported the finance minister’s plans to present legislation to address fragmented public procurement and the automatic exclusion of public office bearers and politicians from the bidding process.

“A technology-based procurement system is a good way to modernise the supply chain system, but the bill must be revised to codify the details of the e-procurement system and this should not be left to interpretation.”

She said that while the inclusion of a public procurement tribunal in the bill was welcome, it needed a minimum of 10 members with separate oversight and decision-making roles where all tribunal members could perform their functions independently and free of implicit pressure.  

Q&A: Edgars boss Norman Drieselmann taps new opportunities

by Katharine Child

Norman Drieselmann, CEO of Retailability. Picture: Supplied

His firm Retailability bought the clothing retailer out of business rescue in 2020, saving a business that seemed destined for failure

Business Day chatted to Retailability CEO Norman Drieselmann about the challenges affecting the clothing sector and how chain store Edgars is doing. His firm Retailability bought Edgars out of business rescue in 2020, saving a clothing business that seemed destined for failure after many restructurings did not turn the business around.

Retailability’s brands include Legit, Edgars, Style and Beaver Canoe.

How are Edgars and the group as a whole coping in SA’s weakening economy? Many listed retailers are reporting selling lower volumes of clothing than a year ago.

Trade is indeed challenging across the group as macroeconomic factors take their toll.

However, our unit volume sales have remained resilient due to the price reductions we have instituted at Edgars to maximise customer value and brand loyalty.

The price deflation in Edgars over the past two years has been significant and positions this fashion business squarely in the value segment for a broader customer base. This is now paying dividends as the group delivered comparable growth over April to June.

Is the growing competition, such as Shoprite entering the clothing market and Pick n Pay expanding its clothing stores, making business more challenging?

Our peer set has been on an expansion road map; however, this is not a new phenomenon in retail. Every year there are some retail businesses embarking on an expansion drive.

By focusing on our strategic positioning and initiatives we continue to deliver returns for our shareholders and an improved experience for our customers.

We still feel we have significant growth opportunities in our own group and are staying focused on these.

What do Edgars’ online plans look like?

We are investing in our online business as we see consumers responding to the omnichannel experience. Our aim is to allow our customers to shop in store or online. The Edgars online website is live and helped that business deliver good growth from April to June.

How is Chinese clothing retailer Shein affecting Retailability’s businesses? Anecdotal evidence shows it appears to be reducing sales at Mr Price, Ackermans and most discount players?

Shein is having an impact on the market. It offers a good online service and a very competitive price. The price is in many ways hard to understand.

We are focusing on our omnichannel offering and improving customer service in-store. There is always a place for a balance between in-store theatre and online convenience. Our brands, including Legit and Style, are working hard to achieve this.

Is local manufacturing struggling due to load-shedding?

Load-shedding has had an impact on retailers and manufacturers alike. There has been investment across the board to reduce the breaks in power, which are often worse in outlying towns where many of the factories are based.

We have not shifted order volume away from local vendors as a result [of blackouts] and remain invested in local production.

Trade, industry & competition minister Ebrahim Patel has encouraged local manufacture. How much of Retailability’s clothing is locally made?

Forty-three percent of our stock on order is local.

Retailability bought upmarket children’s brand Keedo from Cape Union Mart earlier this year. How is the integration of Keedo going?

Keedo is fully integrated into Retailability and we have seen good growth already. The plans to rollout Keedo into Edgars have begun with 25 stores now stocking Keedo as a brand inside Edgars. We are proud that we opened our first Keedo store at La Lucia Mall in Durban and the customer response was overwhelming.

You bought about 130 Edgars stores (including the beauty stores) out of business rescue in 2020. How many stores does Edgars have now?

Currently, we have 114 Edgars stores and 15 stand-alone Edgars Beauty stores. The next big opening for Edgars is a store in Vereeniging at Three Rivers Mall in September. Our new concept stand-alone Edgars Beauty store is opening in Hyde Park in October with fantastic support from the cosmetic and fragrance brands.

How many people does Retailability employ?

We employ just over 8,200 staff.

This interview has been edited for clarity and brevity.  

Adidas unveils Manchester United 2023/24 third kit

Image supplied

Adidas has revealed the Manchester United third kit for the 2023/24 season, celebrating the club’s famed identity – the Red Devil. For this latest jersey, adidas reimagines a past look for today, via a clean bold design that lets this icon of the club do the talking.

As a club with a distinguished footballing history, Manchester United have an abundance of iconic memories to draw on. In creating the latest jersey, designers looked back through those archives and took inspiration from the jersey worn in the 1909 Cup winning season – delivering a look that stands out on the terraces and the pitch.

Much like the 1909 jersey, hero to the design is a crisp cloud white base, providing the perfect backdrop for the new Red Devil emblem to stand out. The design is complimented by the famous adidas three stripes along each sleeve in white and completed with a red ribbed crew neck collar.

For the first time the devil appears singularly on the jersey, and to accompany the launch of the new 2023 2024 third kit, adidas has worked with Manchester United on a short film featuring former club captain, Roy Keane. As the most successful captain and one of the most popular former players, Roy perfectly encompasses what it means to be a Red Devil to a Manchester United supporter.

Inigo Turner, design director for adidas Football apparel said: “With a history steeped in success, we have many Manchester United kits to take inspiration from. For this season’s third kit, the 1909 jersey was the catalyst for that inspiration – which also provided the perfect backdrop to amplify the club’s famous identity – the Red Devil. This design is intentionally understated, taking its cues from present day streetwear trends, with its cloud white background carefully chosen to let the Red Devil shine and inspire fire on the pitch. We know the importance of this identity to the Manchester United fanbase and we’re proud to give fans a design that is just as much at home on the streets, as it is on the pitch.”

The on-field version of the short is constructed with Heat.Rdy technology, optimized to keep players feeling comfortable while performing on the biggest stage. While the kit version for fans features Aeroready technology, which uses sweat-wicking or absorbent materials to keep the body feeling dry.

Both versions of the jersey have been made with 100% recycled materials, representing just one of adidas’ solutions to help end plastic waste. Earlier this year, adidas announced that it is ahead of schedule in its journey to replace virgin polyester with recycled polyester in its products wherever possible by the end of 2024.

The earliest known shoes are sandals that date back to approximately 7,000 B.C.  However, bone analysis of early humans suggest humans began wearing shoes as early as 40,000 years ago.

 

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