Muted holiday spend leaves retailers and hospitality glum

Sunday, 11 February 2024

Black Friday is an import from the United States which has added to the cycle of high prices followed by ‘sale’ prices that now marks the strategy of many larger retailers.

New Zealanders bought less and spent more in the holiday season compared to the previous year as price rises, job worries and high mortgage rates put a dampener on people’s willingness to spend, Kiwibank says.

And with mortgage rates not set to ease until the back end of the year, and unemployment likely to head over 5%, Kiwibank economist Mary Jo Vergara did not expect smiles on the faces of the owners of shops and restaurants in the first half of the year.

“Financial conditions are much tighter than they were a year ago,” Vergara said, despite many workers getting pay rises to counter inflation.

Even the Wellington and Auckland anniversary long weekends showed little for retailers and hospitality businesses to be cheerful about, Kiwibank data showed.

Spending volumes in Wellington on its long anniversary weekend were down 3.2% on the previous year.

While in Auckland, long weekend spending volumes were up 6%, but that was from a low bases as the previous year’s anniversary weekend saw the city deluged with torrential rain and flooding, said Vergara.

Mary Jo Vergara, KiwiBank economist, says, ‘Alongside still high inflation and subdued consumer confidence, there’s plenty weighing on household consumption’.

The holiday season over December and January is a key one for retail and hospo businesses, and traditionally they enjoy a “Santa spike” in spending, Vergara said.

“But 2023’s silly seasonal Santa Spike was far more muted compared to previous years,” she said.

During the last three months of the year spending was up in dollar terms just 0.4% on the same period a year earlier, but for shoppers that mean getting less for more, as inflation has eroded the value of every dollar spent.

The number of transactions made in the last three months of 2023 was down 3.3% on the same period the previous year, Kiwibank said.

Some sectors were hit particularly hard.

“Dollars spent on hospitality, entertainment and recreation collectively declined 4.3%, meaning an even deeper decline in the volume of spend,” Vergara said.

There were 12% fewer transactions for those sectors, she said.

“It seemed that Kiwis opted to catch up over home-cooked meals and movie nights rather than nights-out,” she said.

Restaurant Association chief executive Marisa Bidois says some bars and cafes enjoyed a better holiday period than last year, but a large number saw custom dwindle.

Polling by the Restaurant Association last month suggested the cafe and restaurant sector was split between those who had a tough summer trading period, and those who enjoyed an upturn in business.

“Nineteen percent of businesses saw better turnover than last year, and 25% maintained similar levels. This indicates a degree of stability and growth for nearly half of the businesses,” said Marisa Bidois, the association’s chief executive.

However, she said 33% reported less than normal turnover, and 14% experienced significantly less turnover compared to last year.

“This summer has presented a bit of a mixed bag for hospitality businesses. While there has been more people out and about, many are minding their money with average spend down,” Bidois said.

Managers of the Thirsty Acres in Kirwee, Jono and Jen Alve with their daughters Penelope , 6, left, and Lucy, 8.

“We are still recovering from the difficult trading conditions of the past few years, and our businesses continue to face challenges. However, signs of recovery are emerging and there are fresh shoots of hope.”

Jono Alve opened the Thirsty Acres pub and restaurant in Kirwee in rural Canterbury on the Great Alpine Highway last year in a new building that replaced the old rural tavern that had stood on the site for a century.

“We’ve had a very positive experience,” Alve said.

“We get a lot of passing traffic, a lot of people from Christchurch, day travellers, as well as getting great support from our local community. We still function as the local pub,” he said.

The Canterbury economy has been going well, domestic tourism recovering, and despite tougher times for households, Alve said people were willing to spend to have social occasions out of the house.

“One of the great things about being a human is the interaction you have with other people,” he said.

“In Kirwee where we are, they had no pub for three years, and it’s been one of the greatest pleasures since we opened to see the number of chance meetings between old acquaintances,” he said.

The hospitality sector is feeling hopeful that Minister for Tourism and Hospitality Matt Doocey plans to pay more attention to the sector than the last government.

“When you’re working in your farm shed, those meetings don’t happen.”

Optimism was returning to the sector after the change of government, Bidois said.

It was taking heart from the Government deciding that Tourism Minister Matt Doocey should now be known as the Minister for Tourism and Hospitality, with the title change indicating it recognises the importance of the sector.

“Matt comes from a hospitality family, so he gets it,” said Alves.

Kiwibank says that for home electronics and clothing stores, the Black Friday deals and Boxing Day sales did not quite cut it in 2023. Both the value and volume of spend were below 2022’s spend.

The holiday sales were a disappointing time for retailers, Kiwibank data indicated.

Vergara said the Black Friday deals and Boxing Day sales enticed fewer to checkout.

“Everywhere you looked, it seemed that retailers were offering bargains, discounts and deals. And with each year, sales seemed to be advertised earlier and earlier. For some, November’s Black Friday lasted a week, while Boxing Day sales began before we even cut into the Christmas ham,” Vergara said.

The discounting was across the spectrum from clothing to couches, electronics to ebikes, frisbees to fridges, and hammocks to hardware.

Retailers’ full warehouses needed clearing, so the discounting would continue, said Vergara.

While supermarkets were hoovering up more of households’ budgets, other retailers managed to win small increases in spending at the tail end of the year.

Kiwibank reported an increase in transactions done in home content and furnishings, but each transaction was worth less than the previous year, and the overall spend was down 5%.

It appeared it was a case of “passing up on the four-seater sofa with a chaise, instead going for the two-seater and a bean bag”, Vergara said.

Spending on hardware fell 0.6%, even though there were more transactions, which was probably the result of discounting, and also homeowners doing DIY on a smaller scale, Vergara said. “Patching up the fence rather than a whole re-do.”