In Retail (New Zealand) - 2023 Edition
22 August 2023
The post-COVID spending boost ended in 2022, with core retail growth of only 0.3% (nominal 7.5%) compared with GDP growth of 2.4%. Inflation is the driver of top-line retail growth currently, with core retail spending down 0.5% in Q1 2023, despite nominal spending up 6.3%. As expected in our review last year, cost of living pressures and interest rate rises reduced discretionary budgets, compounded by consumers redirecting spending to travel and experiences.
As domestic and international tourism returned, food and beverage services (up 7.1%) and accommodation (up 6.9%) categories recovered, with the former back in line with pre-COVID spending on a real basis, and accommodation down only 10%. However, the “home” categories that benefited so significantly post-COVID began reversing, with electrical and electronic goods down 21.6% on 2021 and losing all gains made post-COVID. Furnishings and recreational goods also fell 3.4% and 4.2% respectively after experiencing significant gains in 2021, with those trends continuing into Q1 2023. Hardware maintained some growth at 1.2%. We expect to see spending on the home continue to decline during 2023 given falling house prices and the negative residential construction outlook.
By region, Auckland and Canterbury are driving growth, with both regions seeing real spending in 2022 c7% higher than pre-COVID, with almost all 2022 growth in Auckland (up 3.9% on 2021). Despite growth in 2021 and 2022, the Rest of South Island is still down 3.3% down on pre-COVID, as tourism and international students take longer to come back following borders reopening in Q2 2022.
Online spending appears to have peaked as consumers move back in store, falling 5% in 2022 (and continuing to fall Q1 2023) according to NZ Post. Retail rents are still lower, and vacancies higher, than pre-COVID, although the trends are also showing signs of changing.
Given low forecast GDP, high inflation, and mortgage rate increases continuing throughout 2023, we expect retail will struggle through this year and into 2024. This year saw the insolvencies of Bobux, EziBuy, Redcurrent, the Mulberry NZ franchise and others. The counter-points are that confidence is finally increasing from record lows, migration has bounced back strongly, and unemployment is low, although this may be tested in the next 12 to 18 months. Retailers still need to carefully manage stock, staffing, and store decisions, with scenario analysis for demand forecasting and inventory management to mitigate these risks.
Note that we are not adjusting for COVID in this year’s review, with each year compared directly with the prior year.
All quoted percentages, other than GDP, are in real terms.