When is revenue lost?

In respect for Nelson Mandela’s death and funeral, many retailers closed yesterday for the day. This Business Day article claims a R300m loss for the retail industry as a result.

Except, no. Some fraction of those sales might be permanently lost, but the income hasn’t been spent and the cash still sits in shoppers’ pockets. The R300m is mostly just delayed.

There will be some impact where closed shops sacrifice sales to open shops.

There might even be some small amount of decreased consumption and therefore increased saving. The article headline wasn’t, “Retailers sacrifice means an increase of R300m in personal savings.”

This is part of an ongoing trend (probably for hundreds of years) for journalists, even respected financial journalists working at a respect newspaper, to seek the most impressive headline. It also reflects our very human tendency to ignore second order effects. Which is a pity because that’s where the really interesting analysis lies.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.