The biggest issues facing retail in New Zealand

Local retailers face increased competition, forced price matching when IKEA and Costco arrive in New Zealand. Photo / Getty Images

New Zealand's retail sector is a tough space to be in right now -- and it's only getting harder.

A report by Massey University has identified the adoption of technology, slumping business confidence and the pending arrival of some of the world's largest retail companies to New Zealand as some of the biggest issues pressing retailers operating in this country.

The report, now in its third year, pulled together insights from 70 New Zealand retail businesses that were surveyed, and resources from industry organisations.

Sliding business confidence paired with an all-time low consumer confidence has rattled the sector, Jonathan Elms, Massey University professor of retail management, said, and thousands of retailers had not hit their sales targets this year.

This, along with, prolonged skill shortages and Government policies that make it harder to employ migrant workers, had made the sector particularly challenging. He said ease of operating in the retail industry had deteriorated to an 8 out of 10, an increase from a 6.5/7 expected just a few years ago.

Elms said the pending arrival of retail giants Costco Wholesale and IKEA would have a significant impact on local retailers in coming years following their launch - both a real concern for retailers, who were working to get ahead while they could.

Jonathan Elms, Massey University professor of retail management. Photo / Supplied

"The announcements by IKEA at the end of last year and Costco earlier this year were really no surprise, but I think a lot of retailers are going to be surprised at how significant their presence is going to be," Elms told the Herald.

"IKEA has always been known as a flat-pack furniture retailer but they sell so many other different products and ranges that it is going to impact so many different businesses: DIY to furniture to grocery and everything in between," he said.

"Costco another really interesting business; I think that's going to have a marked impact as well because they sell everything under one roof, multiple different product ranges and lower prices.

"There's only ever only one business in every market that can compete on price. If the price leader is Costco, domestic retailers, to be able to fend it off and do well, need to crank up their customer experience and service."

Up to 300,000 retail staff missing

Elms said New Zealand was missing between 100,000 and 300,000 retail staff to service the sector.

"There's been lots of facts and figures mooted within the industry to say how much of a gap there is between supply and demand of people working in retail.

"Figures can be from the 100,000s to 300,000 people that are literally missing within the sector," Elms said. "A lot of retailers are fighting for the best talent.

"There is a significant gap of talent within the industry. At any one time there can be up to 150 store manager jobs being advertised, just in the Auckland area."

More retailers were now recruiting staff from overseas, particularly to fill management roles, as a result, he said.

Source: Massey University's Big Issues in Retail report

"The service industry is very ferocious in terms of trying to acquire and retain talent and by default companies have to go overseas simply to fill appointments."

The perspective around retail careers needed to change for the country to be able to meet its staffing needs, Elms said.

About 215,000 people work in retail in this country, around 10 per cent of all filled jobs.

Silver lining

The report outlined that retail stores were now more important than ever, despite the phenomenal rise in online shopping, and contrary to what many believe.

Between six and 10 per cent of sales were being conducted online at New Zealand retailers. While online sales still make up a relatively small percentage of overall sales it is the biggest growth area, he said.

Stores today were used as a catalogue of what a brand had to offer, he said.

"Stores are transforming, developing into something different. Physical stores are the physical manifesto of the brand; it's all about providing consumers with the experience of the brand and what the brand is about. Many may choose to shop online from the same retailer or a competitive retailer but the best way to make the impact or mark within the market is to have a physical store," he said.

Despite the rise in online shopping, physical stores are still vital for retailers. Photo / 123RF

"Bricks and mortar outlets can be loss leading for a business, can cost a lot more than what they get back in terms of sales and revenue, but the bigger implications are having a physical brand presence."

Retail NZ chief executive Greg Harford agrees that physical stores were "far from dead". "Customers still want to be able to go to the shops – but they are increasingly looking for an experience, not just the straight transactional experience that might have been shopping last century.

Many retailers were concerned they did not have the capabilities to provide the online and digital experience consumers now expected, the report outlined.

Interestingly, it also outlined that loyalty programs were no longer seen as important to retailers as they once were, compared to last year. An improved store experience was found to be most important.

"With the broader economic forces that are surrounding retailers, it is becoming more troublesome to operate. Conversations seem to be quite negative at the moment but projections for 2020/21 seem to be that things are going to be on the up."