Retailers downbeat on trading prospects

Tuesday, 23 April 2024

Pessimism among retailers has increased as consumers have taken to shopping less.

Retailers are increasingly gloomy about the trading outlook for the rest of the year, following a difficult period in the first quarter.

Retail NZ’s latest Retail Radar survey showed 64% of retailers missed their sales targets in the three months to March 31, and almost a third of businesses were unsure if they would survive the next 12 months.

Heading into the quieter winter months, retailers held “anxiety over the future” due to low levels of trade.

Sales had been on the decline each month since October, according to the survey.

Approximately 32% of retailers said they were either “unsure” or “not confident” that their business would survive the next 12 months ‒ a marked level of pessimism when compared to the same period a year earlier, and in the last quarter of 2023.

Retailers expected no improvements in the near-term economic outlook and respondents said they did not expect their sales to improve in the coming April-June quarter. About 55% said they did not expect to meet their sales target in the current quarter.

Consumer spending is slowing with retailers reporting that customers are shopping and buying less frequently.

Retail NZ chief executive Carolyn Young said post-election optimism recorded at the end of 2023 had dissipated as retailers continued to struggle with inflation and soaring costs.

Sky-rocketing insurance costs and a lack of consumer confidence were heavily impacting profitability, Young said.

“Inflation is affecting all business costs, plus consumer spending is slowing with retailers reporting that customers are shopping less and buying less when they do shop,” Young said.

“As we enter the traditionally slower winter months, retailers will be tightening their belts in anticipation of slow sales and uncertainty.”

Young said Retail NZ was hoping the upcoming Budget in May would help to restore confidence to the marketplace and provide a pathway out of recession.

Inflation continued to be the biggest concern for retailers, followed by insurance cost increases and wage increases.

One retailer said: “The cost of insurance has increased so much and will carry on increasing that I have considered cancelling all policies. My rent has also increased all the while my income/sales have dropped.”

Another said that a 20% increase had “nearly crippled the business”, while another retailer commentated that insurance companies, and their “excessive” increases, had gotten out of hand.

“If we [retailers] have a bad year, we can’t just double our margin the next year, to regain the lesser profit we made (or lost).”

Insolvency practitioner Kare Johnstone, partner at McGrathNicol, said retailers were finding current economic conditions tough.

“Consumer confidence has fallen no doubt after NZ has gone into technical recession and consumers are shifting their spend away from goods towards services and experiences, in line with the increase in tourism. Spending on discretionary items continues to be negatively impacted as a result of the rise in cost of living, inflation and high interest rates. Spending in retail sectors electrical, recreational, hardware and furnishings have been on the decline since around mid-2022,” Johnstone said.

“Economists are predicting unemployment to increase further to 5% or more. Mortgage defaults are at the highest level since January 20 and non-performing loans are continuing to rise. The credit pinch is being felt by consumers and businesses. Consumer sentiment and the headwinds in front of us will put further pressure on retailers while consumers further tighten their belts, particularly on discretionary spend.”