The categories facing the biggest pullback in spending
Thursday, 11 May 2023
Economists say retail spending in some categories has now dropped below pre-pandemic levels.
High interest rates and a high-inflation environment have meant consumers have less to spend and retailers are having to rethink their sales strategies to get consumers to part with their money.
Figures from Worldline show consumer spending weakened towards the end of April. The annual growth rate dropped from 8.3% in March to 3.8% in April.
Wordline said the decline in annual growth towards the end of last month suggested that consumer belt-tightening was a key factor, with consumers particularly shying away from buying big-ticket items.
Less surplus money to spend after expenses was also a factor in a reduced discretionary spend.
Stats NZ Food Price Index figures show the cost of food was up 12.5% in the year to April, rising at the fastest rate since 1987.
Grocery food prices were up 14%, fruit and vegetables were up 22.5%, restaurant meals and ready-to-eat meals were up 9%, meat, poultry, meanwhile fish prices increased by 9.5% and non-alcoholic beverage prices were up 8%.
Kiwibank economist Mary Jo Vergara said retail spending was “coming under pressure”.
She said electronic transaction data showed spending on housing-related goods continued to fall, with the average monthly volume of spend on home contents and furnishings now 7% below pre-Covid levels.
Spending at cinemas had still not recovered to pre-pandemic levels.
“Consumer confidence has weakened, credit is harder to get, and the housing market is still in correction. Taken altogether, the appetite to spend among households is waning – particularly for the big-ticket items,” said Vergara.
She said she expected it to continue to decline, and affect more retail categories.
“Disposable incomes are being squeezed in the current environment. Especially for those households whose mortgages are due to roll off the record-low rates of 2020/21 later this year.”
Electronic card spending in retail industries increased 0.7% in April, according to Stats NZ.
Retail commentator Chris Wilkinson, managing director of First Retail Group, said there was now far less surplus money around for consumers to spend after their expenses, due to rising mortgage rates and food prices.
Wilkinson said this was making retailers work harder to make a sale, and branch out to diversify their product offering.
This could be seen with Chemist Warehouse now selling cleaning supplies and dishwasher tablets, and the likes of Mitre 10 now selling more grocery items and big boxes of washing powder, he said.
“Retail spending has dropped 4% yet the key things people are buying such as the likes of groceries have gone up significantly. This has left a huge amount less for everyone else.
“The sectors that we are seeing a huge pullback on are home improvements and furnishings and apparel has been quite badly hit … and we know people are now being more cautious and spending less on appearance medicine,” said Wilkinson.
New data from NZ Post’s e-commerce report shows Kiwis have now resumed spending more at offshore retailers and less locally, meanwhile consumer confidence sits at a record low.
Wilkinson said retailers were increasingly looking at value and at offering deals on products that were not typically their main category.
“Retailers are moving into products that have got a broad appeal and relevance, creating essentially more reason for people to shop with them,” said Wilkinson.
“We always see a seasonal drop through the winter but this year we will have it coupled with redirecting the spending on travelling … and money re-prioritised into holidays and life experiences.
“I think what’s going to happen is the retailers are going to have to be smart to maintain goodwill and spending and market share.”