“Lipstick Effect” is still in play in the South African economy

Growth in retail sales in South Africa has all but slowed to a complete standstill. According to Statistics South Africa (SSA) retail trade sales were only 0,2% higher during August than in the same month last year. This was the fourth consecutive month in which the growth of retail trade sales slowed on a year-on-year basis.

Consumers are still buying essentials like food, medicine and cosmetics; but are cutting back on spending on appliances, furniture and even clothes. Stefan Salzer, partner and managing director at the Boston Consulting Group (BCG), says this shows that the financial pressure consumers is not letting up. “Growth is not negative yet, but still looks pretty bleak. Sales look stabile, but in a very difficult in environment.”
Salzer says the sales of pharmaceuticals and medical goods, cosmetics and toiletries was one of the biggest positive contributors to overall growth in retail trade sales. Sales of pharmaceuticals and medical goods, cosmetics and toiletries posted the strongest growth of 6,6% compared to a year ago. “Retail in pharmaceuticals, cosmetics and toiletries seem to be the positive exception in a very challenging environment. Companies in this sector have remained very resilient and even one big player is even seeking to raise capital on the stock exchange to expand further.”

Salzer says the continued growth in this sector may also be an indication that the so-called “Lipstick Effect” is still in play in the South African economy. This effect refers to the phenomenon wherein consumers cut back spending on more expensive luxury goods during tough economic times, but increase spending on products like lipstick which are viewed as a more affordable luxury.”
Sales of food, beverages and tobacco in specialised stores climbed by 2.6% year-on year in August. On the other hand, sales of household furniture, appliances and equipment dropped by 6.8% year-on-year and sales of textiles and clothing, footwear and leather goods also declined by 1.1%. “The financial results we have been seeing from South African clothing retailers reflect these numbers and proves that this sector has had a very tough year.”