Clothing And Footwear in South Africa

Abstract

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Product coverage

Clothing; Footwear

Executive summary

Consumer spending confidence remains high

There was demonstrated resilience in South African consumer spending habits. Despite record high household debt to income ratios, clothing and footwear sales remained strong with double-digit growth rates in volume terms. Although the monetary authorities campaigned vigorously to alert consumers of the dangers of a high debt ratio and encouraged them to reduce spending, in the absence of real incentives to save and invest, it is likely that the current scenario will persist as consumers opt to spend their increasing disposable incomes on more clothing and footwear items.

Low debt servicing costs drive up credit utilisation

Low interest rates and the resultant low cost of servicing debt will continue to attract consumers to spend more on credit purchases of clothing and footwear. Positive economic growth and wealth redistribution led to the rapid expansion of a strong middle class with disposable incomes. Even though the government will implement the National Credit Act in June 2007 to promote the responsible awarding of credit to consumers, new consumers in the growing middle class will create an upward movement in credit utilisation.

More disposable incomes set to increase retail consumption

Tax relief measures announced in the 2007 budget will result in a substantial amount of disposable income falling into the hands of consumers. The beneficiaries of these tax relief measures are mainly in the lower middle and lower income brackets. Despite authorities urging the beneficiaries to use the extra money to service existing debts and for savings, the likely outcome is more retail spending and clothing and footwear purchases will top most shopping lists. This is because there are no real incentives to save for consumers in these income brackets.

Import quotas to push up retail prices

The government put import quotas on Chinese clothing and textiles into effect from January 2007. This limits the volume of clothing and textile products imported from China. Major clothing retailers condemned the move, arguing that local production capacity cannot cope with the rising demand for affordable clothing. This will create shortages and result in the price of clothing and textiles going up, especially in the second half of 2007.

The strength of the rand will generate more cheap imports in footwear

Positive economic growth enabled the rand to sustain itself against other major currencies. This will facilitate the importation of cheap footwear from regions of low cost production like China, Brazil and India. Footwear was not included in the imposition of quotas, so it will be business as usual for footwear imports.