Black Friday is creating a nightmare – 16 November 2018

Black Friday is creating a nightmare for national accountants

Black Friday has become part of the SA retail environment. What have been the implications?

The increasing acceptance of “Black Friday” amongst retailers and consumers is changing seasonal patterns in South Africa and thereby causing a nightmare for national accountants. This is because they use seasonal adjustment and constant rand to assess the “real” state of economic affairs. This is illustrated below for real retail trade.

Black Friday got its name in the US. It was the day after Thanksgiving Thursday, when families would visit the malls for specials similar to Harrod’s in the UK and their New Year specials. The reason why it was called “Black” was not that it was bad, like Black Monday 1987 when the New York Stock Exchange crashed by more than 22% in a single day, but rather that it was good, as that was the day when retailers swung from being in the red to being in the black, in other words they started to make profits.

Although Black Friday has been a retail phenomenon in the US for decades it was only in 2017 that it started to have a marked impact in South Africa. This is reflected in the real retail sales data from Statistics South Africa (Stats SA), which showed that in November 2016 there was only a 1.8% year-on-year (y/y) increase, but in November 2017 this shot up to a 8.1% y/y surge as more retailers offered Black Friday specials.

This is starting to affect the whole value chain as importers now have to stock up ahead of November rather than in December for the peak retail season. So the number of full containers imported now peaks in September rather than October, which was the normal seasonal pattern prior to 2017.

That means that manufacturers must also adjust their production schedules, so now the peak production month is September rather than October. This is reflected in the Chinese foreign trade data as China is the so-called “factory of the world”. In October Chinese exports grew by 15.6% y/y after a 14.5% y/y rise in September following a 9.8% y/y gain in August. This was despite the imposition of American tariffs on a host of Chinese goods as the trade war between the US and China escalates.

Part of those increased exports made its way to South Africa as full containers imported into Durban surged by 29.5% y/y in October. This was nonetheless 3.4% less than the number imported in September. Part of the reason for the high y/y increase in October was due to the fact that port operations were disrupted in October 2017 due to storms. That did not take place this year so Durban could handle more than 106,000 full containers imported compared with only some 82,000 a year ago.

A change in a seasonal pattern is however not only important to manufacturers, wholesalers and retailers, but also for national accounts. This is especially so when the change shifts the impact from one quarter to another as our national accounts are reported on a quarterly basis. It already takes place in the first and second quarter as Easter gets shifted from March in one year to April in the next year, but it has not previously affected the second half of the year.

Now however due to the surge in imports in September rather than October, the seasonal adjustment factor will “overstate” the current account deficit in the third quarter and correspondingly “understate” it in the fourth quarter. It will take some five years before the seasonal adjustment factor stabilises, but that is provided some online retailer in South Africa does not copy China’s Alibaba and create their own “Singles Day” on November 11 or like Makro create a “Black5day”, which moves even more sales from the Christmas period into November.

Alibaba reported sales of $30.8 billion or around four times more than the December 2017 total South Africa nominal retail sales of R117.4 billion during its annual Singles’ Day extravaganza on November 11 this year. In the past few years, Singles’ Day has exceeded the transaction volume of both Black Friday and Cyber Monday in the US combined. The event has also far surpassed Amazon’s Prime Day, which is the most similar to Singles’ Day because it is also a 24-hour, online shopping event.

The bottom line is that the third quarter is likely to be over-stated in terms of imports and the subsequent transport and warehousing which is good news for those people expecting an exit from the first half recession. The bad news is that the current account deficit will be overstated as well.

The other good news is that retailers and consumers are getting their mojo back as the number of containers imported for September/October 2018 compared with September/October 2017 is up a large 9.8% y/y, so the fourth quarter could surprise the nay-sayers as well.

This contribution to Finance Friday was made by

Helmo Preuss

Forecaster Ecosa cc

+27 79 773 2458

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