'Fragile' retail sector now more challenged than Covid times

Tuesday, 13 June 2023

The country’s retail sector is now more challenged than it was during the height of the Covid-19 pandemic amid forced lockdowns and trading restrictions, says the industry association.

Retail NZ chief executive Greg Harford said the sector had been hit by a change in consumer spending habits over the last 18 months which was increasingly forcing retailers to shut their doors or re-evaluate their businesses.

Significant inflationary pressures on households and businesses meant the retail sector was in a vulnerable position, he said. “Things are very fragile out in the retail sector.

“People have got reduced incomes as a result of interest rates going up on their mortgages; but there are a lot of factors that are making it pretty difficult for customers to get out and spend.”

Harford said sentiment amongst retailers was “gloomy”.

“This is tougher than it was at the peak of Covid. When everything was locked down, it was pretty clear what was happening and there was a view that there would be a way out of that eventually. Now, we’re in an era of depressed consumer confidence, and we need to see that turn around in order to help bolster the retail sector.”

Retail spending dropped by 1.7% or $113 million in May, when adjusted for seasonal effects.

The largest contributor to the fall in spending was fuel, down $25m (4.5%), followed by apparel, down approximately $13m (3.7%), according to Stats NZ.

Stats NZ said it was the first time since December that only one industry had an increase in spending, and the first time since February that total card spending had fallen.

According to quarterly spending figures, however, the total volume of retail sales has been on the decline since the December quarter, with retail activity subdued for two consecutive quarters.

While consumers continued to spend up large on food and dining out most out of necessity, all other areas of the retail market remained stretched, said Harford.

Tough market conditions were hitting retailers of all sizes, both big and small, as seen with the future of H&J Smith up in the air, he said.

“We’re aware of quite a few businesses that are closing. We’re not seeing massive numbers of forced receiverships or liquidations, but we are seeing lots of businesses that are making a call to close up shop and do that in an orderly way because the fundamentals of their businesses have changed, and it’s clear some firms are not sustainable.”

How one Christchurch retailer is surviving the downturn

Small business owner Chelsea Rauner has returned to full-time work as a teacher to ensure she can cover her personal and retail business expenses after a downturn in sales.

The Christchurch-based producer of baby goods such as bibs, comforters and bows spent more than three years working on her business full-time during a period of booming sales, but the recent downturn had meant she needed to look for other ways to continue.

She returned to full-time study last year to learn more about business and the economy, and now works full-time as a teacher, running her business Love By Chelsea on the side.

She said it was much harder to make sales in the current market.

“Running a business has always involved some level of uncertainty, regardless of its size. However, in recent times, we've witnessed a significant surge in expenses affecting not only our personal lives but also our customers and businesses as a whole. It's becoming increasingly difficult for many business owners to justify the risks involved, as the constant worry of making ends meet takes a toll on our mental and emotional well-being,” Rauner said.

The business started at the end of 2018 and within six months it turned into a full-time job. It was thriving in 2021, Rauner and her partner travelled up and down the country attending various Baby Expo shows to promote the brand. But running the business to achieve the level of sales it typically made began “turning into an uphill battle” from the middle of last year, Rauner said.

“Over the past year, the cost of food has risen, which means we need to sell more stock to support ourselves and our families. Additionally, rent or mortgage payments have seen dramatic increases, sometimes even hundreds of dollars per week. This creates an even higher need for more sales to cover these additional costs, and I imagine those who lease buildings and stores have faced similar challenges.

“Shipping costs within New Zealand and overseas have also skyrocketed, and while we can adjust prices on our goods to accommodate these expenses, unfortunately, our customers end up shouldering the burden of increased prices.”

Even website fees, such as Shopify, have surged, with costs jumping from $50 to $90 per month, and advertising on Meta platforms such as Facebook and Instagram had become less effective, she said.

Despite all the challenges, Rauner, who makes and sews her products by hand, said she remained optimistic for the future of her business once market conditions had improved – and she felt thankful she had a teaching degree to fall back on during difficult times.

Harford said retail spending and activity and had been on a downward spiral since the end of last year.

“When Christmas failed to fire for many retailers, there were lots of business owners that were looking pretty hard at what they are doing, and over the last six months we have seen that pick up pace.”

The fashion segment of the market was the hardest hit, he said.