Guiding consumers since 2009

Retailers struggle to cope with consumer debt

By Staff Writer
Nicolette Dirk, finance writer,
In the last six months, JD Group and Truworths wrote off R1 billion consumer debt due in the aftermath of customers struggling to deal with the high cost of living.
According to reports, JD Group wrote off more than R500m while Truworths wrote off R647m of consumer debt.
In a statement regarding the interim results for the six months ending 31 December 2013, JD Group said that during the period under review, the South African consumer environment continued to be difficult. 
“Subdued consumer demand, prevalent throughout the period, worsened during the 2013 festive season. This negatively impacted merchandise sales of household goods during the Group's peak trading period,” said JD Group.
They further stated that customers are facing continued pressure on disposable income due to increased living costs and higher debt-to-income levels, impacting spending on furniture and household goods.
Truworths also stated that the environment is particularly tough for credit retail. It added that 71% of the group’s sales come from credit related business.
Truworths further cited South Africa’s low GDP growth rate, rising inflation, weakened Rand, high unemployment, mining strikes, the high level of consumer indebtedness and the decrease in unsecure credit granted   as the reasons for the difficult environment most consumers are finding themselves in.
A review of Truworths’ financial period ending 29 December showed lower than planned sales growth and increased markdowns. As a result there was a lower gross margin and costs also increased more than sales. Headline earnings per share growth which increased by a disappointing 1, 4%.
Tough love attitude
During the period under review, JD Group said they have become more stricter about who they lend money to. “Newly introduced stricter credit granting criteria continued to reduce acceptance rates of credit applications, which further impacted sales negatively,” it said. 
Truworths also adjusted credit strategies from the second half of 2012 onwards. These strategies included more restrictive new account criteria, strategic changes in collection operation and refinement in scoring strategy.
According to Truworths the trading environment is expected to remain challenging for the balance of the 2014 financial period. 
“Product price inflation from the devaluation of the Rand is likely to be higher than 10% for the Group for the remainder of the financial period,” said Truworths.
In light of credit lenders claiming to take a tougher stance when it comes to lending, Moneybags investigated and came to a shocking revelation on how easy it still is to ruck up credit. To read more about this click here.

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