Read Daily Maverick’s article here: Retailers feel pinch – consumers buy less, seek deals and loyalty programmes (dailymaverick.co.za)

According to Statistics South Africa, South Africa’s retail trade shrank in real terms a further 1.4% YoY in May, marking the sixth consecutive month of lower year-on-year retail activity. The three months ending May are 1.5% down in real terms compared to the same period in 2022. The sector most impacted by the shrinking retail sector has been food, beverages and tobacco (-5.5% year-on-year) with textiles, clothing, footwear and leather good surprisingly resilient at +6% year-on-year – the only sector to show real growth.

Driving business growth in South Africa is challenging considering the impact of high inflation, rising interest rates and load shedding. Many factors are putting pressure on the consumer. This is best observed in the sharp increase in credit default over the last six months. Particularly worrying is the increase in default for home loans and VAF. Together these two types of credit account for more than 70% of total loan balances.

❝ 2.5-million consumers in households with a monthly income greater than R40 000 have 1.5 times the spending power of the 29-milllion consumers in households earning less than R10 000

In order to bolster economic growth within one of the most unequal societies in the world, we need keep in mind the varied demographics of the country. South Africa has a population of about 60.6-million of which about 43-million are adults (over the age of 15). Only 36% of adults are working and less than half have at least a matric. The 2.5-million consumers in households with a monthly income greater than R40 000 have 1.5 times the spending power of the 29-milllion consumers in households earning less than R10 000.

Eighty20, a consumer strategy, analytics and research business helps clients use data to build customer centric brands, has analysed the retail market using its Eighty20 National Segmentation. Below is an outline on how four of the segments are feeling about retail, their shopping behaviour as well as their engagement with loyalty programmes.

Mass Credit

There are close to 10-million people in this segment, who are responsible for about R637-billion in annual expenditure. With an average age of 36, their average personal income is just over R5 175 per month. About 80% of the segment have retail store accounts and 17% own a credit card. This segment is in survival mode, are shopping less frequently and opting for bulk deals. Their decision on bulk buying deals is however impacted by loadshedding.

This segment is also downgrading brands, cheaper options are being added to their shopping carts. The Mass Credit market are less loyal to retailers, as finding the best deal is crucial. They are visiting malls less frequently and are extremely focussed on comparative shopping. Loyalty programmes have become a huge part of their shopping behaviour and they are affiliated to almost every loyalty card. Loyalty programmes are a means of financial relief and they find themselves reliant on all notifications for the best deals via SMS, social media or apps.

Middle Class

There are close to 4-million people in this segment, who are responsible for about R754-billion in annual expenditure. Their average age is 40 and they have a personal income of around R14 591 per month, with a household income of nearly R25 000. They hold roughly 30% of all home and VAF loans in South Africa, but only 20% by value. This segment is feeling the pressure of the current economics as well as the safety and security of the country.

The Middle Class is also opting to do a lot more online shopping as its more convenient. These customers are shopping smaller baskets – less luxuries and more essentials – careful to account for loadshedding in their product choices. Online shopping is viewed as highly convenient as they don’t need to leave home, they are getting the best deals which saves them both time and money. They value Pick n Pay Smart Shopper, Checkers Xtra Savings and other loyalty programmes, especially those with fuel partnerships.

Heavy Hitters

There are close to 3-million people in this segment, who are responsible for about R1.5-trillion in annual expenditure. This segment makes up the wealthiest 5% of the country. Two thirds of this segment is made up of families, with the average age 44 and average personal income of R45,512 per month. This segment holds more than half of all home loans and VAF in South Africa, but 76% of home loans and 69% of VAF by value. Growth in these credit products has been low at 11% YoY.

Overall Heavy Hitters are conscious about their spend and are increasingly planning and budgeting their expenses. This segment is prioritizing groceries, with luxuries or treats coming in at second. This segment view big shopping centres as a huge temptation – so the focus is increasingly on planned shopping trips within close proximity to where they reside. Big shopping malls are still popular for end of season sales and entertainment. They also love loyalty programmes where there is a cross pollination of retail and fuel.

Students and Scholars

There are close to 8-million people in this segment, who are responsible for about R82-billion in annual expenditure. Their average age is 18, with an average personal income of just over R2 100 per month. This segment has very little credit – mainly retail and unsecured – with the rate of new defaults double the overall population.

With fewer responsibilities and expenses this segment is not feeling the pressure as much as their older counterparts. They prefer in-store shopping in order to buy the best products as opposed to online app deals, not price sensitive deals. In terms of loyalty, the fuss-free ones like Seattle Coffee are a winner as it requires very little effort and spending per unit is low.

❝ Comparative shopping and bargain hunting is driving a lot of retail behaviour

“It is evident that the current economic landscape has impacted frequency of shopping trips, basket size as well as a key focus on prioritizing essentials grocery items. Comparative shopping and bargain hunting is driving a lot of retail behaviour at the moment, with retailers needing to be smart with their promotions, ranging and online presence to attract additional and retain existing spend,” concludes Steve Burnstone, CEO at Eighty20.

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