New Zealand's retail sector shows signs of life but still fragile - report

Overall retail sales remain down on despite increased spending by Kiwis. Photo / Getty Images

New Zealand's retail sector is showing early signs of improvement as spending recovers, but economists warn the increase in domestic spending won't be enough to fill the void of international visitors over the summer months.

The latest Retail Radar report canvassing the state of the sector shows overall retail spending over the past six months from March to September is down 2.7 per cent. An improvement on the 6.4 per cent decrease recorded in the six months to August.

Monthly sales for September were up 19.6 per cent on the same time last year and just under two thirds of retailers met their sales targets, the Retail NZ report outlines.

Encouraging spending figures aside, industry experts say the sector remains "fragile" and it is too soon to assume that this is the start of a recovery.

Greg Harford, chief executive of Retail NZ, said the outlook for the sector was looking "much more positive" than it was just six weeks ago.

"While the September results were really good, in the last six months spending is down nearly 3 per cent. It's not as bad as it could be, and much better than anyone was predicting back in April, but it does point to the fact that while we may have some good months there is still a long road to recovery," Harford told the Herald.

"Seventy eight per cent of firms are now saying they are confident they will make it through the next 12 months - that's a big step up from where we were in August."

ASB Bank senior economist Mark Smith said Kiwis were spending more than they typically would and had been covering the shortfall in spending from few international visitors.

Smith said prospects were looking up for retail, but the rosy outlook was not expected to last. At the end of September, MBIE spending figures showed levels had returned to where they were last year.

"We went into a very big hole during the lockdown and we've pretty much bounced back to where we were this time last year, and that's despite spending from people with overseas cards being down 60 per cent," Smith said, adding that spending increases were being driven by purchases of durables.

"People have spent a lot more time at home, and have looked to nest building. Home and recreational retailing, things to do with kitting out the home, has been very strong."

With New Zealanders not being able to travel overseas, many were spending more at home domestically. Without this, the sector would be in a much worse state, Smith said.

Low interest rates had boosted domestic spending and a strong housing market was underpinning more spending, he said.

But economists are wary of a turnaround in unfavourable conditions.

The unemployment rate is expected to move above 7 per cent by the end of the year and with summer months on the horizon, traditionally peak tourism, this is when the impact on the retail sector will be felt.

"There won't be as many or any people coming in and those [overseas visitors] tend to provide a kick for retail during the summer months. With those absent there will be more of a void. Yes not as many New Zealanders will be going overseas but that still won't make up for that shortfall of fewer overseas visitors."

Mark Smith, senior economist at ASB Bank. Photo / Supplied

From November and December, Smith anticipated there would be big drop in spending figures.

"At the moment, the timing of the year has helped us, interest rate caps by the Reserve Bank has helped us, the wage subsidy from the Government has helped us, but the time of the year will change and be less favourable.

"We like to think things are looking really good, but we're pretty weary looking ahead.

"Things are going really well now, and [will] hold up probably for the next month or two, but it's really that Christmas period that we're a bit more concerned about - and that's the peak time for retail."

The end of September is typically the start of an increase in spending in the lead-up to Christmas. But Harford said it was hard to say if the worst of impact from the pandemic had past - and that it depended on if there would be further lockdowns.

About 45 per cent of retailers surveyed by Retail NZ said they had experienced improved sales in September, 19 per cent said sales were at similar levels to this time last year.

Australians still locked out

Sixty per cent of respondents with an online presence said sales were up, compared to 35 per cent for bricks and mortar-only businesses.

Harford said he expected more Christmas purchases to happen online this year, inline with the recent trend towards greater online transactions.

The partial transtasman border meant Kiwis were now able to visit some states of Australia, but Australians were still shut out of New Zealand and quarantine measures in place for returning Kiwis meant not many would likely take up the travel pass.

"It probably isn't going to have much of an impact until we can put in place some provisions in for the in-bound border," Harford said.

The retail sector would get a much needed boost in spending from open borders but at the same time closed borders meant Kiwis were now spending more, he said.

"We're certainly keen to see borders open as soon as possible in a sensible and pragmatic way."