Retail NZ says weak December trading has drained many shops' cash reserves. Photo / RNZ, Calvin Samuel
By Susan Edmunds of RNZ
We are only halfway through the first month of the year and already the business closures are mounting.
EB Games will close its shops at the end of the month. Miniso and Yoyoso shops are in liquidation. Wellington’s Leuven Belgian Beer Cafe will close after 25 years in business.
Smaller centres are also affected. Whangārei’s Rodney Wayne said it was closing its doors, as was nearby Orrs Pharmacy, which has been open 80 years.
While economic improvement is on the horizon, there are warnings that the number of businesses closing could get worse before it gets better.
Economist Shamubeel Eaqub said the rate of closures often picked up at the start of a recovery.
“Particularly for some sectors, because the early part of a recovery is slow. There is a disappointment gap.”
He said that was seen in the Quarterly Survey of Business Opinion (QSBO).
“Businesses were saying ‘oh, next quarter things are going to be much better’. Things were better but not as much better as they had expected. So the disappointment gap is the most persistent it has ever been in the history of the QSBO.
“A lot of businesses would have gone out and hired people or they might have made investments or they might have brought in stock so they’ll be at the edge. There is still a bunch of businesses that will struggle through this early part of the recovery.”
Eaqub said, quite often, it was because the business had been bleeding cash and that caught up with them.
“I think there’s still a spate of business closures to come.”
But he said that should start to ease towards the end of the year.
“I think everybody thinks everything turns on a dime. It doesn’t. Different parts of the economy move in different ways.”
Some retailers would be suffering after a weaker-than-expected Christmas period, he said.
“Also some industries like construction, when the early part of the recovery comes quite often businesses will go out and bid for jobs at prices that are unrealistic because they’re just grateful to have work and then they overcommit and face financial difficulty because the cost pressure is built really quickly in the construction industry.”
Carolyn Young, chief executive of Retail NZ, said many shops had not seen the lift in sales in the fourth quarter that they had been hanging on for.
“The fourth quarter is your biggest quarter of the year where you’re going to make your profit and we know that sales were down in December … businesses have used up most of their cash reserves so their ability to continue to stay alive will be compromised if they haven’t managed to cover off their sales in December at full price.
“Through December we saw a surprising number of businesses have items on sale before Christmas, which is unusual.”
She said cost pressure had continued to rise and unless businesses had been able to negotiate things like rent reductions then there would be more liquidations.
“Two national businesses, 61 stores across the two businesses, have announced liquidations or closures in the first 10 days of the year ... that shows how difficult it is for small and bigger businesses. We continue to see small businesses ring up about restructures.
“We’ve got an advice line and one of the most popular topics continues to be business change, restructure, business closure and then the sort of performance management things with staff which are often an indicator that businesses are really focusing on the bottom line and how do they get the performance out of staff to ensure they have optimal sales that they need.”
She said the Government could do more to ensure its settings were business-friendly and encourage people to buy from New Zealand businesses rather than offshore.
“In the next few weeks we’ll start doing some work on what’s happening overseas – South Africa put a tax in place, I think they’ve done the same in France with the businesses like Temu and Shein and that levels the playing field up because New Zealand businesses have to comply with all the New Zealand legislation and offshore businesses don’t comply with anything.”
She said while businesses could not be propped up by government, there could be settings that were more supportive.
Keaton Pronk, an insolvency practitioner at McDonald Vague, which is handling the Yoyoso liquidation, said it would be a testing year for insolvency because of the looming election.
“What we have previously seen in an election year is that businesses will take a wait-and-see approach until it is clear which party or coalition of parties will be running the country for the next three years. What will be interesting is the approach the IRD takes over this period.
“On the latest available figures, the IRD tax debt to be collected remains around the $9 billion mark, well above where it was sitting pre-Covid and no doubt the Government would like to recover these funds to spend and are funding the IRD accordingly.
“With this playing out the IRD will continue to apply pressure to businesses that are in arrears or fall into arrears. Looking at the January winding up figures advertised so far we can see the IRD is already active in advertising their ongoing winding up proceedings.”
He said he had a number of inquiries over Christmas and January that have turned into appointments by stakeholders.
“January is traditionally a hard month for businesses as they close their doors in December for the holidays and have little income but still need to cover fixed costs, holiday leave and face IRD obligations such as November GST due January 15, PAYE due on January 20, October to December FBT due on January 20, provisional tax due on January 15 and for the larger employers more PAYE due on February 5, this a lot of cashflow businesses need to find at a slower time of year.
“2025 was back at the levels we saw in 2011, post 2009 GFC, and we are expecting to see corporate insolvency appointments continue at the elevated levels into the middle of 2026.
“To date, the appointments have been widespread hitting all industries and regions differently, so we are unable to point to one particular sector that is unaffected. Walk down any main street and you will see a number of for lease signs up.”