The impact of Coronavirus Disease 2019 on the financial performance of retail stores in South Africa

Abstract

The retail sector is widely recognised as a key contributor to economic growth and plays a vital role in national economies. However, the emergence of the novel coronavirus disease 2019 (COVID-19) introduced a level of vulnerability that affected all aspects of life and business. The COVID-19 pandemic significantly disrupted the financial performance of retail companies. Significant revenue losses were due to widespread store closures and government-imposed lockdowns. Nevertheless, the extent to which COVID-19 affected the financial performance of retail businesses has been underexplored. The study aimed to investigate the impact of the COVID19 disease 2019 on the financial performance of retail stores in South Africa and develop a financial performance model suitable for future pandemic scenarios or similar crises. The study was conducted using an econometric approach through panel data analysis, with data drawn from 197 retail companies listed on the JSE, impacted by the COVID-19 pandemic during the period 2017 to 2022. Content analysis was employed to examine COVID-19 disclosures within the annual reports of publicly listed retail companies from 2017 to 2022. Company websites, Statistics South Africa, and McGregor BFA were utilised as data sources. Financial ratios were dependent variables, while retail companies and COVID-19 were treated as independent variables. This approach enabled the identification of analytical trends reflecting changes in financial performance in response to the pandemic. The study revealed an adverse relationship between financial performance and the retail sector. An increase in COVID-19 cases correlated with a decrease in financial performance for retail stores not offering essential goods and services. Additionally, the results showed that the number of COVID-19 cases was negatively and insignificantly associated with Tobin’s Q, indicating that an increase in case numbers corresponded with a decrease in Tobin’s Q or vice versa. The study acknowledged that various factors may have influenced the impact of the COVID-19 pandemic on the financial performance of retail businesses. It is therefore recommended that further research be conducted to identify and examine these contributing factors.