Strong spending is expected to continue for the next few months. Photo / Getty Images
The retail sector faces four major challenges as it enters the New Year.
While the tail-end of 2020 has been a busy and positive one for most retailers, with strong sustained spending, this is not expected to last.
Retail NZ chief executive Greg Harford says retailers are wary of the year ahead, with many braced for headwinds and changes in consumption habits.
Consumer demand in recent months has been built on the back of closed borders and the inability to travel abroad, but with the Prime Minister signalling international travel to the Cook Islands and Australia towards the end of the first quarter, spending is expected to dip as a result.
A booming housing market and low-interest rates have also encouraged kiwis to spend.
Harford says New Zealanders have had no choice over the past eight months to shop at home, but Kiwis will be eager to redirect that spend as soon as the option becomes available.
"All of those factors have led to a relatively strong end of 2020, but we expect those to start to change into 2021, particularly with the borders," Harford told the Herald.
BORDER UNCERTAINTY
While it's an ever-changing beast, Harford says the expected easing of border restrictions in the first three to six months of 2021 would likely lead to a "dampening" in spending.
"It's going to be a pretty tough year for retail, you are going to see businesses doing their very best to get customers into the door, but it is all going to hinge on consumer demand and how strong the economy continues to perform."
It is fair to assume strong spending could be directly linked to closed borders, and that this would change as the country begins to open up, he says.
"There are lots of people who would normally go overseas, at least once a year for a holiday, they would be saving up for that but at the moment they can't go away so they aren't saving up and spending some of that money."
Closed borders had been "good news" for retail, Harford says, as it had helped see the sector through a difficult year, "but you'd expect that to change as the borders do reopen."
EXPECTED ECONOMIC DOWNTURN
A big question mark hangs over the state of the economy and what it will look like as we head into a new year, says Harford.
While its performance in the months after the onset of the pandemic had beat economist predictions and painted a relatively positive picture, this was expected to turn in 2021.
"There are forecasts saying [New Zealand] is going to be facing slightly tougher economic times and that will lead to a bit of belt-tightening by consumers as well; they'll be less likely to get out and spend.
"A combination of those factors point to 2021 not being quite so rosy."
ONGOING SUPPLY CHAIN ISSUES
With the slow down of goods arriving into New Zealand, and the subsequent delay in exports being sent out of the country, retailers are poised to see a dip in spending as demand is unable to be filled.
Ports of Auckland and others around the country are struggling to offload stock from cargo ships fast enough to make it to stores quickly enough which has resulted in empty shelves at a number of retailers and other businesses warning of product shortages as they struggle to get their hands of ingredients for manufacturing.
Some products were already running in short supply, and there was no sign of resolution to the issue, says Harford. "It's not going to be a great year for retail.
"It's going to be a tough year for retailers, things are going to tighten up a little bit, and we'll likely see a bit more pressure on consumer spending."
He says logistic and supply chain issues would likely be the biggest challenge the sector would face in 2021, second to the "disaster situation" if there was a return of Covid-19 in the community in New Zealand.
MINIMUM WAGE, SICK LEAVE ENTITLEMENTS
Increases to both the minimum wage and sick leave entitlements will be big headaches for the sector this coming year.
From April 1, the minimum wage increases by $1.10 to $20 per hour, and while there are few retailer workers currently paid the minimum wage, it will put pressure on these businesses to increase the wages of other staff inline with increases to the hourly minimum, says Harford.
"There are quite big costs coming up down the track for retailers that will put pressure on the expenses side of the business," he says.
"The issue is that it affects everyone paid above minimum wage as well; people who have been in the business a few years, for example, will be expecting that their wage rates will increase to take into account relativities with the minimum wage."
The proposed increase to sick leave entitlements from five days each year to 10 for all staff, regardless if they are employed on either a full time or part-time basis, will mean that
Harford says approximately 20 per cent of the workforce in the retail sector work part-time, but they would also be entitled to 10 days of paid leave throughout the year. "Once you account for public holidays and annual leave entitlements that works out to be 20 per cent of the working year for some staff."
A combination of minimum wage and sick leave entitlement increases for retail businesses would likely make it harder for people to find part-time work, says Harford, particularly for those with less experience such as students.
"Everyone in retail wants their employees to come to work well and be treated well ... but the reality is that if you have a workforce that includes lots of part-timers, and a part-timer has the same sick leave entitlements as a full-timer, then the rational business decision is to move towards only employing fulltime staff, and that's not good for people who might be trying to get back into the workforce."
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