I have thought about whether or not to write on the topic of 2016, and previously decided not to, however the dismissal of Nene, SA’s downgrade and various events in global markets make it worth trying to look ahead at 2016, and how the consumer may or may not be pressured, and respond.
The most obvious and immediate threat is the drought. In past years, drought has prompted urban migration as people seek work or support in towns. This places pressure on family budgets. The marginalised are displaced, and crime appears to become a bit more noticeable. Whether or not the drought will have an impact on employment, if industries have to cut back operations, remains to be foreseen. The obvious impact is diminishing spend.
The falling rand is a problem. Dollar denominated imports and luxury goods will become more expensive. The traditional argument is that a falling dollar is good for exports, and by default employment, however in light of the commodities rout, this argument may not be valid. On the bright side though, demand for uranium is expected to be strong in 2016.
Although the oil price seems close to ideal if only it would transfer to households in Namibia, it is a worry in light of the high degree of spending in Namibia by Angolans. If Angolans are pressured at home by the drop in oil revenues, they may be pressured in Namibia, and their conspicuou local spend can be expected to decline, leading to a game of catch-up with impacts on local wallets as local business adjusts prices to turnover shortfalls.
The expenses entailed in payments to local authorities are also most likely to increase, as electricity and water is becoming more expensive, and as there is a need to finance affordable housing.
Factor in pressure on small-scale property buyers who are financing houses with rentals, and expect increases there, which will lead to a higher rental parity.
In short, everything can be expected to become more expensive, and consumption levels will probably decline. The Namibian consumer will be forced to seek some form of personal austerity to survive. The question is where in the wallet that hedonism will be achieved?
The first impact will probably be in groceries. The consumer may be expected to spend less on impulse purchases, and stick to a basic and conservative shopping list. Chocolate will no longer be as impulsive as it once was. On the other hand, high volume consumption alcohol, such as beer and wine, are most likely to remain in relatively high demand.
As we are a nation that establishes our self-worth based on immediate and visible status symbols, clothing and personal devices will likely continue to be strong categories. White goods and vehicle purchases are however likely to be depressed.
The consumer will be inclined to seek immediate tangible benefits from spending, so intangibles such as financial services will have to do a lot of legwork on short-term retention, and will also have to work to avoid the grudge purchase position, which perception will have medium to long-term repercussions.
The solution is repetitive: recessionary tactics. Offer the consumer value to defend market share. Don’t cut on communication levels.
There are a couple of elaborations on this that are important however.
Firstly, value should seek to retain loyal, repetitive customers. Bargain seekers look for low-cost products, and will almost certainly not develop loyalty unless the bargain is perpetuated. This devalues turnover.
Secondly, do not seek to build new custom with discounting, as this creates an expectation of lower prices. Much the same as the situation with bargain seekers, a price rise after discounting is hard to defend.
Thirdly, media had the hindrance of expense in recessionary tactics, however the spread of mobile phones makes omission of low-cost, highly targeted social media almost inexcusable.
2016 is likely to be tough but there is opportunity to prosper.