In Retail (New Zealand)
03 December 2021
In-store consumer trends since re-opening and rent relief update
In this edition of In Retail (New Zealand), we looked at what has happened in-store since the re-opening of retail on 10 November 2021, when Auckland progressed to level 3.2, compared to previous re-openings. Note that unless otherwise stated, we are looking at in-store activity only (i.e. excluding online sales), in order to consider any changes in consumer behaviour.
Unsurprisingly, in-store footfall and spending increased, but fell short of previous post-lockdown activity levels. Footfall was down 31% and spending down 3% across New Zealand for the week ended 21 November 2021, versus the same week in 2019 (as shown in the table below). Previous lockdown re-openings saw spending above 2019 levels and footfall much closer.
This lower level of in-store activity from the current lockdown could be due to a combination of the following factors:
Food & beverage (F&B) dine-in services not being open in Auckland. This re-opening is different from earlier re-openings as in-restaurant dining in Auckland remains closed until the new “traffic light” system is implemented. F&B accounts for 15% of core retail spending and was down 22% in October 21 versus October19, so could equate to c.3% of the spending shortfall. F&B also drives footfall to other retail sectors. This will be visible in retail spending as hospitality opens from Friday, 3 December 2021, albeit with capacity limits.
Continued working from home for many. This may be limiting impulse buying for workers based near retail centres and F&B spending on coffees/lunches/after work drinks.
Greater consumer fear of COVID-19 in Auckland. Given the number of daily cases being reported, consumers are unsurprisingly apprehensive about mingling in the community.
Waiting for the sales. Consumers may be waiting for seasonal sales which will be visible in retail spending over the coming weeks.
Running out of discretionary funds. Consumers spent 7% more in the 12 months to June 2021 than in the same period in 2020 or 2019 (both in-store and online). There is a risk therefore that consumers have already spent their money on one-off purchases in previous periods. This appears unlikely however, as spending remains historically high in home-based retail categories such as furniture, homewares, hardware, garden supplies and electronics continues, perhaps from funds saved from a lack of overseas travel.
Spending moving online. Browsing and spending activity may also be structurally moving online, as consumers become more accustomed to shopping online through necessity. BNZ reported that total retail spending (including online) for the week ended 16 November 2021 was 7% higher than the four weeks immediately prior to this lockdown, suggesting consumers are happy to spend, just not as much in-store. NZ Post reported in their November eCommerce spotlight that online spending was 17.2% of total retail spending in October 21, up from a pre-lockdown average of around 11-12%. Excluding Food, Groceries & Liquor sectors, which consumers could shop at in-store as well, online was 26% of October’s retail spend. New Zealanders still have a way to go before reaching UK online spending at 36%, but with online growing at over 25% per annum, it is highly possible. Retailers will therefore need to continuously monitor their return from bricks & mortar, especially as vacancy rates increase and rentals fall.
The charts below show in-store footfall and spending over time by region. South Island footfall was similar to pre-lockdown levels, and Canterbury and Wellington in-store spending were above 2019 levels throughout their Level 2. We therefore expect Auckland consumers to follow similar trends and increase activity over the coming weeks, supported by seasonal sales activity and the move to the traffic light system. As data becomes available in the coming weeks, our expectation is that spending should at least reach 2019 levels across New Zealand.
That said, the reopening of stores and improved in-store sales may spell the end of external support for retailers. Retailers may no longer have a legal entitlement to reduced rent, the wage subsidy or resurgence payments (other than hospitality) but may still be suffering from reduced sales especially in key CBD and tourism hotspot locations, as people stay home. Compounded by global supply chain issues, rising operational, materials and labour costs, and staffing shortages, there are a number of challenges facing retailers this summer.
Rent Relief Bill
The COVID-19 Response (Management Measures) Legislation Bill became law on 2 November 2021. The Act contains a clause to adjust commercial lease rent payments to support tenants that do not have a “no access in an epidemic” clause already in their lease agreements. Relief could be retrospectively applied from the start of the lockdown on 18 August 2021.
This clause applies when there is an epidemic, and the tenant cannot access all or any part of its leased premises. The bill requires consideration of a tenant’s loss of income in determining the “fair proportion” of rent relief to be provided by the landlord, with relief applying to both rent and opex.
This is a welcome development for those retailers who otherwise have not agreed an abatement with their landlords, especially for Auckland retailers, given the duration of this latest lockdown. However, that relief may have ended as Auckland retailers (excluding hospitality) have had access to premises since 10 November 2021.
Thank you to Kepler for access to the New Zealand footfall data. If you would like to learn more about how Kepler can assist you, please visit www.kepleranalytics.com or contact email@example.com.
Please contact us if you find the data in this update useful and would like further updates over the coming weeks to observe how consumer in-store trends develop.