What a difference a year makes. This time last year retailers believed that consumer indebtedness and reduced buying power was the worst of their problems. Analysts were predicting that interest rates would bottom out in July and from there consumer and, in turn, retailer fortunes would slowly improve. With this in mind, the share prices of Foschini, Truworths, Lewis and JD Group started to climb in June and July 2008 as investors counted on a resurgence in the sector.

How misguided we were. The expected decline in interest rates began only in December. By then it was too late to save consumers, or indeed the SA economy from the ripple effects caused by the global financial collapse. Global consumption nose-dived; commodity prices slumped; the rand lost value; exports declined; and as job losses loomed, consumers became less disposed to spend.

Though retail sales edged higher by 1,2% in January, for the first time in nine months, it was a red herring, and the rate fell by a dramatic 4,5% in February. Curiously, retail share prices have largely held up, failing to reflect this negative reality. "This year things are probably more uncertain than ever before," says BoE equity analyst Jason Binneman, "but share prices are not factoring this in."

Despite the conditions, SA retailers - in varying degrees - are weathering the slowdown in sales. However, furniture retailers such as the JD Group and Lewis will have a ghastly time as shoppers with no access to credit delay their purchases of faux-leather lounge suites. Similarly, lifestyle retailers such as Mr Price Home and Foschini's @home have been left in the cold by consumers.

Recessionary environments are the ultimate test of a retail strategy and management team. When times are good, anyone can make a buck bringing a container of furniture back from Bali or funky accessories from China and India. But apply pressure and weakness is quickly exposed. Luckily SA retailers generally have strong, stable management teams, says Binneman. "Right now they are focused on managing their inventories, getting the stock mix right and curbing expenditure. I get the sense that all of them, including Woolworths, are doing a good job of this."

You can see it in the results. At Shoprite, after-tax profit grew 40% to R962m on the back of sales that grew a remarkable 27,3% to R29,6bn in the first half to December. Spar's after-tax profit increased 30% to R681m for the year to September; and Pick n Pay increased from R964,7m to R1,7bn. At Truworths profit for the six months to December increased 14% to R787m, and at Woolworths operating profit increased 6% to R1bn in the same period. At Foschini interim profits dipped 5% to R470m, but these are expected to improve over the full year as efficiency gains deliver returns. Reflecting the tougher conditions in the furniture industry, attributable profit at Lewis declined by 4% to R273m in the half year to November. At JD Group, which is also grappling with an internal restructure, profit dived by 50% to R514m in the year to August.

Shoprite's positioning at the bottom end of the market was the key to defying the downturn, while a weaker rand lifted revenue from stores in the rest of Africa. Both Shoprite and Spar benefited from their decision to position stores in the rural areas and townships as they took market share from independent grocers.

Pick n Pay is also targeting the township and peri-urban market by transforming its Score supermarkets into Pick n Pay stores. Its strategy, announced in September 2007, to reclaim the upper income customer is taking time to deliver results. Perishables are fresher, convenience foods tastier, and in-house brand identification is clearer. But convincing customers of this is proving difficult, particularly as competitors are doing the same.

Woolworths Food, which expanded extensively during the fabulous years between 2002 and 2007 is facing the consequences of targeting the upper end, and being myopic in the process. Customers left in droves as the grocer failed to adjust prices in line with changing economic circumstances. But it's sharpened its pencil and this year reduced the prices of 245 food lines.

Strategies are not just internally focused: Massmart, for instance, is targeting a bigger slice of the grocery market that falls outside the listed retail groups, estimated at R125bn. It is acquiring smaller independent cash 'n carry retailers such as Cambridge and Shawtel to do so. Pick n Pay is moving into convenience with Pick n Pay Daily, which will be found in busy areas, and it is going ahead with its move to the forecourts with oil company BP. Shoprite continues to dominate in the rural areas with its expansion of low-cost retailer U-Save.

No retailer can afford to sit still. Though all the food companies have benefited from high inflation, which boosts top-line growth, the worry, says Binneman, is food disinflation. "Lower food inflation will make it tough for supermarket groups to maintain sales growth." As a result, current earnings growth could be hard to match. "If wage increases are 8%, food inflation is 6% and basket sizes are not growing, then you have a situation of negative operating earnings. The challenge is to grow top-line revenue above the inflation rate and keep costs under control. Margins could definitely come under pressure," he says.

Shoprite has the scale and capacity to absorb some of this and maintain margins, as does Spar, which also has an efficient distribution network. Massmart could feel the pinch. "Dwindling food inflation will affect Makro, while Game could come under more pressure as consumers avoid the general merchandise' it stocks and Builders Warehouse languishes as consumers delay DIY projects."

When it comes to discretionary sales, the discount clothing retailers - such as Mr Price apparel and Pep - have shown that if you get your pricing right, there is still a market out there. Even fashion retailers like Truworths and Foschini are able to make relatively good profits, if they get their fashion right.

But when consumers are stretched, there is little margin for mismatching consumer tastes with fashion delivery. Woolworths retail MD Andrew Jennings acknowledged at the last results that the company had not stocked enough value lines in clothing.

Like the management teams at other clothing retailers, Woolworths has its eyes firmly on the ball. "Management believes it now has the right strategy and is intent on its execution," says Sanlam Investment Management analyst Andrew Kingston. "It is hoped they will get it right."

Foschini is also concentrating on execution. Certainly, its manufacturing arm, TFG Apparel, is developing into a competitive advantage and its fashion sense is improving. "Truworths is developing new concepts [such as the Afro inspired brand Ginger Mary] to capture more of the existing market and Mr Price is expanding its franchise operations in Africa," Kingston says.

Firms are wise to concentrate on growth strategies. Traditionally, recoveries lag the first fall in interest rates by at least 12 months, making for a tough year in 2009.

After that they are expecting a long, gradual recovery.