Things were looking better in South Africa before the conflict broke out in Iran. Sadly, we are a country of people who have high transport bills relative to their earnings, with few other alternatives for getting around. A sharp rise in fuel prices hits us hard.

Last week, this column included a note on Mr Priceâs numbers and the strong double-digit growth at Yuppiechef. Although itâs a niche data point, this indicated that perhaps high-income shoppers werenât pulling back on their purchases. But with the release of numbers by Woolworths, we now have a much broader indication that even upper-LSM consumers are being more cautious.

The cleanest way to see this is Woolworths Food, as this is a great example of a staple consumer category (we all need to eat) that is transformed into a discretionary category through the use of premium product strategies. Or, put simply, we donât need to eat organic yoghurt and fancy sourdough.

In the first half of the financial year (the second half of calendar year 2025), Woolworths Food achieved growth of 7.0% in turnover and concession sales. But in the second half of the financial year (ie the first half of calendar 2026), this growth slowed dramatically to 4.4%. Although full-year sales of 5.7% still look decent overall, itâs the momentum through the year that is of concern.

A fancy way to put it is âexit velocityâ â the speed at which Woolworthsâ growth is moving into a new financial year. As growth has slowed so significantly in the second half of the year, the markets get worried about what that could mean for the following financial year.

Before we move on from Woolies Food, itâs interesting to compare their price movement to what we are seeing at value-focused retailers like Boxer. Woolworths Foodâs price movement was 4.7% overall (or 3.9% excluding meat). Thatâs a different postal code to the deflationary environment weâve recently seen at Boxer, driven by price decreases in staples like rice and maize meal. Due to the different strategies that target completely different types of shoppers, the Woolworths inflation basket couldnât be more different from Boxer.

Clothing numbers not pretty

If shoppers were less inclined to add premium Woolworths Food products to their trolleys in the past few months, then what does that mean for a more discretionary sector like clothing? As you can probably guess, the numbers arenât nearly as pretty as the clothes themselves.

Just like we saw in Woolworths Food, this financial year was a tale of two halves. Woolworths Fashion, Beauty and Home (FBH) achieved growth in turnover and concession sales of 6.2% in the first half. But hopes of sustained momentum in that business were dashed by growth of just 2.6% in the second half.

The unfortunate reality for clothing retailers is that sales growth is only one part of the equation. Unlike the grocery retailers who have relatively steady margins each year, clothing retailers can suffer wild swings based on the proportion of full price vs clearance sales in any particular season. And as luck would have it, the Iran conflict hit just as the stores were stocking their fresh winter ranges. This wouldâve directly impacted on the full price sales at the start of the season.

We donât have any specifics yet, but Woolworths has alerted the market to the risks in gross margin and their need to clear inventory. The announcement doesnât explicitly say this, but this challenge is likely to affect both the 2026 and 2027 financial years. The year ended June 2026 wouldâve been hit by weaker-than-expected full-price sales at the start of the winter season. The year ending June 2027 will suffer the impact of more clearance sales for winter than would normally be the case.

Beauty and Home hold up

Are there any silver linings? Well, the Fashion business bore the brunt of the pain, as the rest of FBH has done well. Home was up by a particularly impressive 11.7%, while Beautyâs growth of 7.9% is a continuation of the encouraging trends weâve seen in that category.

The Beauty and Home categories are lucrative. They have higher margins than Food, yet they arenât as seasonal as Fashion. To put it differently: while having new items on the shelves is important for sales, consumers also need towels in both winter and summer.

Another silver lining is that South African consumers have been more resilient than shoppers in Australia and New Zealand. Country Road Group achieved sales growth of 2.3% in the first half of the year, but the second half suffered a decline of 0.5%. To see the Australian business slip into the red once again is really painful for Woolworths shareholders.

These challenges explain why the Woolworths share price is down 16% on a year-to-date basis, or down 8% over 12 months. But how does that compare with the rest of the market?

A peer group for comparison isnât that simple to put together, as Woolworths competes across the Food and FBH categories. The safest approach is to look at the clothing names plus Shoprite as a proxy for a higher-income food strategy (although thatâs a far from perfect comparison). As horrible as the Woolworths numbers may look, itâs actually a middle-of-the-pack performance.

On a year-to-date basis, The Foschini Group is worst off with a 32% decline. Surprisingly, Pepkor is worse than Woolworths, down 20%. Truworths has dropped by 6% and Mr Price is down 1%. Shoprite is up 5% year-to-date, so grocery has outperformed the discretionary clothing retailers.

Flick to a 12-month view and youâll find that Woolworths is second only to Shoprite (up 8.5% over that period). The Foschini Group is the hideous outlier with a 52% decline, while the other three clothing names (Mr Price, Pepkor and Truworths) have lost between 18% and 23%.

One thing is clear from this: the retail sector has been a nightmare for South African investors in the past year. Investing in empty wallets leads to empty returns. DM