Spending recovery continues, but hospitality sector struggles

Friday, 10 July 2020

People are dining out, but hospitality spending remains subdued.

Retail card spending continued to track up in June after its bumper bounce back in May, figures from Statistics NZ show.

The total value of electronic card spending in June was up $421 million, or 8 per cent compared with June 2019 with spending on furniture, hardware, appliances, and recreational goods helping boost sales during the month to $5.7 billion.

Cardholders made 144m transactions in June, with an average spend of $53 per card, but the hospitality industry continued to struggle people spending less eating out than they did before the Covid-19 lockdown.

The continued spending recovery followed a $2.3b bounce back in retail card spending in May as businesses re-opened after the Covid-19 level 4 lockdown, but bank economists are warning retailers face a tough end to the year.

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“During the COVID-19 lockdown, which started late March, we saw a significant drop in spending as the majority of businesses closed. The full force of the lockdown on sales came into effect in April, with more typical total levels of spending returning in June,” retail statistics manager Kathy Hicks said.

Westpac economist Satish Ranchhod said retail spending on electronic cards rose 16 per cent in June, but added: “While that is a solid rise, many businesses will still be left with a hole in their earnings following the lockdown in late March and April.”

Furniture, hardware, appliances, and recreational goods experienced the largest rise, up $310m compared with June 2019, Hicks said.

“Businesses that sold furniture, supplies for DIY home projects, and snow gear, among other goods, experienced a decent boost this June,” Hicks said.

“New Zealanders were taking part in some well-deserved retail therapy after being unable to purchase these items in stores during lockdown.”

Supermarkets, specialised foods, and liquor stores (consumables) had the second largest increase, up $205m (11 per cent) on the same month last year.

“Consumables sales remain up this side of the lockdown, while the hospitality industry is still finding its legs. It seems people continue to spend more on groceries than on restaurants and eating out,” Hicks said.

Ranchhod said: “There has been a particularly large increase in spending on durable items, like furnishings. Some of that will be due to delayed spending after the lockdown. In addition, many households have chosen to re-kit their homes instead of taking overseas holidays.

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“We’ve also seen a strong rise in spending in bars and restaurants, with people keen to get out again after being stuck inside for a month. While the rebound in spending by New Zealanders will be welcome news for many businesses, spending in the hospitality sector is still roughly 10 per cent below the levels we saw pre-Covid.”

And, he said: “Some of the recent strength in household spending is likely due to pent up demand after the lockdown, which might not be sustained. In addition, we expect some easing in spending later this year as the Government’s wage subsidy schemes come to an end.”

ASB senior economist Mark Smith said: “We expect that pent-up demand, no outbound NZ travel and efforts by New Zealanders to support local retail will produce a few more solid months for the retail sector. However, the large economic toll imposed by Covid-19 means that any retail rebound will be short-lived.

But, he said the Stats NZ figures could overstate the strength of the retail recovery

”With many NZ retailers not accepting cash payments, the strength of the electronic card transaction figures likely overstates the likely strength of consumer demand,” he said.

Despite the continued spending recovery, retail card spending in the June quarter was $4.5b behind spending in the same three-month period last year, or 20 per cent lower.

“The falls this quarter occurred primarily in April and somewhat in May, with June being a return to more usual card spending,” Hicks said.

The biggest drop in spending during the June quarter was on hospitality, with spending down 49 per cent as a result of the closure of bars, restaurants and events during the Covid-19 lockdown.

The second biggest drop in spending was on fuel (down 40 per cent) which was a result of lockdown taking so many cars off the roads.

Spending on clothing (down 35 per cent), and the purchase of cars (down 19 per cent), was also down during the June quarter compared to the same three-month period last year, Stats NZ said.