Retail NZ CEO Greg Harford delves into the current macroeconomic climate in New Zealand. 

The New Zealand retail market continues to be significantly challenged by economic conditions.

Consumers are retrenching their spending to manage the impacts of mortgage rate hikes, big jumps in Council rates bills, and the impacts of inflation. At the same time, the housing market continues to be depressed overall, which is making Kiwis feel less wealthy. As a result of these factors, consumers are increasingly looking to reduce their spend, and to reprioritise on food, petrol, and other essentials. Across the sector, spending is not keeping pace with inflation, and spending on apparel and durables is significantly down in real terms.  

It's not all doom and gloom though. Some retailers are performing really well, and certainly ahead of expectations. In Retail NZ's latest Retail Radar survey, 41 per cent report meeting or exceeding their sales targets for the last quarter. Often these are dynamic and nimble businesses catering to a clientele that is less impacted by the economic situation and continues to have good disposable income.

Although some firms are doing well, nearly 60 per cent of businesses didn't hit their targets - a big jump on last quarter, and confidence has hit rock-bottom. Over the last six months or so, a sizeable number of retail firms have taken the call to close their doors, and 36 per cent of retailers are on a knife-edge, reporting that they are not confident, or not sure if they will survive the next 12 months. This is a big turnaround since our last report, and is a level of economic uncertainty that we have not seen since the darkest days of the COVID-19 crisis.

The big challenge for our sector is that, while consumers are not spending, costs are continuing to escalate. Suppliers continue to increase their prices, the cost of labour is going up, and some firms are facing astronomical increases in the costs of insurances.

The economic outlook for the rest of the year is uncertain, which makes it hard for businesses to plan. The Reserve Bank has previously indicated that we may have reached peak interest rates (we will know for sure next week), although the full impacts of recent rate hikes haven't yet flowed through into household budgets, so things are likely to be tight at least through the next quarter.  

On a more positive note, there are reports that we are starting to see small green shoots back in the housing market; and it is being reported that we are now seeing substantial net migration flows back into New Zealand. If this is true, then we should start to see some additional activity coming through into the retail and hospitality sectors - although there's no concrete sign of it as yet.

Any recession is hard for businesses to navigate, and there are real challenges ahead. It's good to know though that there are success stories out there, notwithstanding the difficult environment at present. Businesses that can continue to invest, which are adept at anticipating customer needs, provide great customer service and deliver on their promises will be most likely to make it through in good shape.  

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