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photo: RNZ/Rebekah Parsons-King
A retail industry group said many businesses were closing stores as customers worried about spending.
Westpac McDermott Miller Confidence Survey shows consumer confidence In June, it dropped by 11 percentage points To 82.2, erasing the gains of the past six months.
A confidence level below 100 indicates households are pessimistic about the economy.
The retail industry may be experiencing its worst business situation in modern memory, with consumers spending money on things they really need rather than things they want, one expert says.
Consumer confidence and spending indicators are at their lowest levels in years, and retailers are reporting falling sales, tight margins and reduced profits.
First Retail Group managing director Chris Wilkinson said the drop in consumer confidence was not a surprise to retailers, not just in New Zealand but around the world.
“In speaking to multi-generational retailers and those running large businesses both here and abroad, we have found that this is without a doubt the most challenging period in our modern memory.”
On Tuesday, the country’s largest listed retailer, The Warehouse Group, announced a return to basics. Restructuring and managing change arrive Focus on major brands.
Wilkinson said The Warehouse was doing the right thing in its efforts to streamline senior management and offer consumers a wider range of basic goods.
Caroline Young said retailers could not afford the extra costs.
photo: supply
Retail NZ chief executive Carolyn Young said: Morning Report Consumers and households are uncertain about the job market, housing, and their ability to finance new spending.
“When you look at the charts, they are probably worse than they were in 1987, when it took us a long time to recover from the crisis.”
Young said she had heard some of the New Zealand Retail Association’s members were deciding to close their stores.
She said that with prices rising, including insurance and freight charges, retailers could not bear the extra costs as the profit margins were really slim.
“It’s really about surviving to 2025, getting through the next six to eight months and then hopefully we’ll see confidence turn around because while it takes time for the economy to turn around … we actually need consumer confidence and business confidence to turn around … “
Young said businesses should remember that customer service is key and look at how to remain agile under the current restrictions.
Cash is king.
“If you have some cash then you can get through.”
Business leaders in the country’s two largest cities said people were reluctant to spend and local businesses were struggling.
Simon Arcus, chief executive of the Business Centre, said it was a worrying time.
“At the end of last year, there were 46 vacant stores in prime locations and the situation for retailers is really tough.
“Certainly, the city relies on the government’s relationships with so many businesses to ensure that they are healthy, so these are worrying times.”
After the election, there was an increase in optimism “because it was a more pro-business government”.
“But of course, the reality or the aftermath, as you said, is that … the economy is weak and needs strengthening, and the cuts certainly just make people feel a little bit pessimistic.”
Public sector cuts were a contributing factor, although this meant more jobs in the private sector and lowered wage expectations.
It’s going to be a tough winter, he said.
Canterbury Business Association chief executive Leanne Watson said Canterbury was under pressure.
Watson said inflationary pressures and rising interest rates were the top issues facing businesses, followed by weakening consumer confidence and demand.
“The situation for businesses is quite difficult at the moment.”
Cost pressures are starting to mount, she said.
“Forty per cent of our members who we surveyed said they were seeing a significant impact on their business right now and of course some of these costs are legacy costs from the pandemic. We are seeing wage growth pick up and those costs are now factored into the business so we are seeing some relief in demand and we have seen these costs rise significantly over the last few years and those factors combined with very high interest rates are having a significant impact.”
But she said it wasn’t all doom and gloom.
Everyone is watching closely to see if interest rates fall earlier than expected, with 72% of businesses surveyed very confident they can cope with disruption.
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