Many local businesses on way back

By James Fuller


Times are tough - but just how are Bay businesses coping? As we head into the second half of the year, we talk to businesses leaders on the State of the Bay economy

The tough economic times look set to continue but innovative, financially sound Bay of Plenty businesses can still prosper, say commercial experts.

"In Tauranga at the moment everything is about price," says Tauranga Chamber of Commerce CEO Max Mason.

"We are like one big warehouse where everyone is looking for a bargain."

Mr Mason said the phenomenon was not industry specific with people looking for deals from groceries to housing and from loans to commercial office space.

"It's right across the board. Even government contracts are being based more and more on the lowest cost."

He said the establishment of a "proliferation" of Tauranga retailers offering low-cost imports was indicative of this bargain culture.

These were described as "a response to demand".

Commenting on Tauranga industries, Mr Mason said debt collection agencies were doing well, housing sales were increasing and most IT companies were doing "reasonably well".

However, retail businesses were reporting largely flat sales whilst tourism and accommodation figures were down.

Whatever the industry though, Mr Mason said basic business tenets held true.

"Good management and good financial structure is what will see businesses through. We're in a climate where the strong are getting stronger and the weak are getting weaker. If a business is not able to change to the same degree as the change in the external environment then it will be left behind."

The Chamber's CEO said we were experiencing a period of "grumpy growth".

"Ten of the last 11 quarters have included economic growth but it doesn't feel like that. There are a lot of highs and lows and that affects confidence."

The comments come in a week of conflicting data and reports.

Paymark figures showed the Bay of Plenty experienced a 3 per cent increase in retail spend, from $220.4 million in June 2011 to $227 million in June 2012 but many Tauranga businesses did not notice that increase.

Bill Campbell, owner of Devonport Road souvenir and gift shop Fancy That, said this year had been the toughest of the four he had been trading in Tauranga.

Whilst Laurie Young, owner of Willow Street's Laurie Young Menswear, said retail spending took a dive in 2007 and retailers like himself had still not come out of it. His store was closing this week after 46 years.

Others though, such as Annette Ball from Mount Maunganui store The Gilded Edge, said she had noticed "more foot traffic" and customers being "less cautious" in their spending.

This week's BNZ Confidence Survey showed tough conditions being experienced across a broad range of business sectors. However, it reported respondents' feelings about the economy had "improved slightly".

In real estate, two prominent reports released this week were at odds on the direction of the local market. The latest QV index had the value of Tauranga properties increasing by 2.1 per cent but the Real Estate Institute of New Zealand's June figures showed the city's house prices falling by 2.1 per cent.

Ross Stanway, chief executive of Realty Services which operates Bayleys and Eves, said "the market is in equilibrium at the moment". He said that price stability was good for buyers and sellers.

Tauranga Harcourts franchise owner Max Martin said his company had noted a recent increased demand for property in the $400,000 to $1 million bracket. Mr Martin said people were getting "more bang for their buck" today and those paying $375,000 for a house were buying "a better quality home" than four to five years ago.

Bay of Plenty developers reported increased activity.

It was a trend highlighted by the sales figures of the Carrus Corporation for its 2000-section Pyes Pa development, The Lakes. Carrus this week announced it had sold 56 sections in two months since it saved the development from receivership.

David Mansel, who launched Tauranga-based generation Homes in 1997, said a return to normal levels of building consents could be seen within 18 months.

Hospitality NZ's Bay of Plenty regional manager Alan Sciascia said the situation in the local hospitality sector was "very tough". He said 75-80 per cent of hospitality businesses were currently "treading water".

"They are barely making enough to keep going, they are just waiting for things to come right."

Mr Sciascia said there were three fundamentals to running a hospitality business in trying times: location, experience and lack of debt.

"If you have all three, you will be fine. If you get one wrong and two of the others right you will find it tough going. But if you get two out of the three wrong, you're history."

For manufacturers, the picture was mostly flat, but Page Macrae Engineering, established in Tauranga in 1955, reported a growing order book.

Mike Lehan, Page and Macrae general manager, said "many businesses have battened down the hatches or are on a go slow" and had "lost labour to higher paying jobs in Australia".

"Page Macrae have seen the opposite, our export business is thriving and we have more local work than we can poke a stick at. However, we know that other smaller engineering companies have experienced little or no upturn in business and have remained depressed over this time. I am hearing that the situation is starting to show signs of improvement but this has happened only very recently."

He said future prospects for the sector were dependent upon the "economy continuing to grow and the retention of onshore work that is otherwise going to cheaper offshore countries".

Mr Lehan said local industry should be supported "to a greater degree as we run the risk of ending up like our Australian cousin's manufacturing sector".

He added that the lack of industry training, which had been an issue for 20 years, was something the Government needed to address.

In the financial sector, Mark Lister, head of Private Wealth Research at Tauranga-based Craigs Investment Partners, said the economic environment had had a steadying effect on investors.

"Our clients are largely conservative and risk averse, taking a more realistic view of the situation than they were a maybe few years ago," he said.

"There is more focus on generating an income stream from their investments rather than capital gain, which was the focus previously. There is the realisation this is going to be a slow recovery and they are looking for a safe, secure return. They are more cautious and selective in their investments."

Banks were not immune to the uncertain atmosphere.

"Banks make money from people borrowing money and between 2004 and 2006 plenty were doing that," said Mr Lister. "But that climate has changed and now people do not want to take on more debt even though interest rates are low. The good deals and rates at the moment are dwarfed in people's minds by their desire to reduce their debt. We are in a period of aggressive debt reduction.

"Banks at the moment are struggling to grow their lending business so they are struggling to grow their profits. Added to which, offshore borrowing is more expensive because of the impact of what's happening in Europe so banks are stable but they're not seeing strong growth."

Mr Lister said the Bay of Plenty economy mirrored many others in New Zealand.

"In most regions, the economy is growing but barely and we're similar to that. The anticipated benefits of the Christchurch rebuild are taking longer to take off than expected which has kept the job market subdued, with unemployment at 6.7 per cent. We still have a high currency so that makes it a tough environment for the export sector, manufacturing firms continue to find it tough and retail and hospitality are also having a hard time. The property market everywhere but Auckland is pretty flat, you're not seeing strong growth. But the dairy sector, where products prices remain high, is doing well."

However, according to a Craigs report on the returns performance of New Zealand equities in 2012, a number of listed businesses locally-based or with local interests are bucking the trend.

The figures, based on dividends paid plus share price increase, showed the Port of Tauranga up 12.6 per cent, TrustPower achieving a 9.3 per cent return for shareholders, retirement village developers Ryman Healthcare (Bethlehem's Bob Owens Retirement Village) and Summerset (Summerset Katikati) up 28.8 per cent and 22.4 per cent respectively, and Comvita experiencing a 35.8 per cent rise over the last six months.

Greg Simmonds, strategic projects manager at Tauranga's economic development organisation Priority One, said conditions might be tough but it was important to focus on the positives. These included the recent BNZ Bay of Plenty ExportNZ awards.

"The fabulous turnout was an acknowledgement of companies doing some amazing things in tough times, doing them smartly and efficiently," said Mr Simmonds.

He said there were "some good things happening" which would assist business growth in the medium to long term.

"With treaty settlements come opportunities for Maori to invest and the imminent broadband roll-out will bring all the benefits of ultra-fast broadband.

"There are success stories such as Te Puna's Newnham Park, a business innovation horticultural park where businesses are working together and doing some great things. Added to that we're starting to see more growth, development and investment in the CBD, all of which is important and positive for the city."

Mr Simmonds said economists had predicted the current conditions were set to last.

- BAY OF PLENTY TIMES

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