Covid 19 coronavirus: Consumer confidence set to dive - what that means for retail spending

Signs are already pointing to a lift in spending in the grocery segment. Photo / Getty Images

Auckland's move to alert level 3 and the rest of the country's move to level 2 is expected to dent optimism and consumer confidence.

Consumer confidence is driven by job security. If consumers are concerned about their future employment that often translates into dampened spending. A drop in confidence typically results in a pull back in spending, particularly on durable goods.

The latest card data from Stats NZ shows Kiwis were still on their post-lockdown spend up in July, with retail spending on electronic cards up 1.2 per cent. That followed a solid gain last month.

The rise in electronic card spending to record levels was boosted by sales of furniture, hardware, and appliances - for the third consecutive month sales of long-lasting goods (durables) remained at higher levels than last year.

Spending levels were up 11 per cent on the same month last year. Monthly spending was around 7 per cent higher than the levels prior to the outbreak of Covid-19.

But Kiwibank anticipates that golden run of strong retail spending will subside over the next couple of months as the wage subsidy comes off and over fears of an extended second lockdown and the spread of community transmission of Covid-19.

"Although there was a slight recovery in consumer confidence as reflected in spending data, we will see that fall and dip back down given recent developments," Kiwibank economist Mary Jo Vergara told the Herald.

"A lot of confidence we've seen [in recent months] has been based on the fact that New Zealand has done so well on the health front, there wasn't community transmission and we had come out of lockdown earlier than expected, but now we've backtracked and that will dampen consumer confidence."

The upgrade in alert levels would mean more New Zealanders would again be concerned about their job security and how lockdown would affect the economy.

"The economic outlook certainly has darkened now that Auckland has gone to level 3, which is essentially lockdown. Auckland is our largest city and when you have the largest city on standby the economy as a whole will be losing a significant portion of output."

Vergara said Kiwibank expected spending data to show a lift in some retail categories, such as grocery as Kiwis had already began to panic-buying essentials, but large decreases in discretionary segments.

She warned that panic-buying of essential items could also be "more aggressive" this time round if lockdown was extended past three days.

"It won't just be Auckland that is affected. The behaviour by Aucklanders may trickle down and influence consumers across the nation - it will flow on to the worries and concerns that Kiwis outside Auckland will also face."

Categories such as furniture, clothing, jewellery and other discretionary items that have experienced strong uplift in recent months would like return to flat levels recorded during the first round of lockdown, she said: "All those trends where spending everywhere outside of grocery stores flat-lined near zero, I think we'll see that return in spending data."

Signs are already pointing to a lift in spending in the grocery segment. Photo / Getty Images

Retail analyst Chris Wilkinson agreed, saying emerging confidence across the retail and hospitality sectors would likely now be stalled.

"There was a feeling that we were heading in the right direction, businesses were seeing some certainty ahead and I think that [the upgrade in alert levels] completely erases that and resets where we were at," Wilkinson, managing director of First Retail Group, said.

Spending would be re-prioritised from here on out and consumers would once again be mindful of what they were spending and on what, he said.

There was no doubt the changes in alert levels would have a negative impact on confidence, he said.

"Businesses had greater confidence in terms of staffing, reinvestment that might have been happening, and people were starting to see some confidence going forward and now that will reset."

Retail expert Ben Goodale has a more optimistic outlook for spending.

"A lot hinges on how long we're in level 3 and level 2 for, but Kiwis love to shop, they need to buy things and unless there's a massive change economically which is divergent from what we know right now, the moment people can get back to shops they will go," Goodale said.

"I don't think [the change in alert levels] will initially hit consumer confidence, I think it hits confidence in our border security and health response but that is not related."

Any drop in spending would be due to physical shops being closed and New Zealanders not able to direct the equivalent to online orders, he said.

"There's no way online can fulfil the level of normal retail sales."

But he expected most retailers to be better prepared this time for any extended lockdown.

Any sales made during an extended lockdown would be those that were urgent and could not be put off until a later date in the same way, for example, purchases of cars and beds could, he said.

"There will temporarily be a hiatus [of some goods] but then again we'll come out of it and they'll be a similar pattern to last time - they'll be pent up consumer demand and need."