Consumers' reluctance made a year to forget

By Karyn Scherer

1998 was a year many retailers are probably keen to forget.

While many businesses were hit by the fallout from the Asian crisis, retailers in Auckland's CBD had a crisis of their own to contend with: they were forced to cope without a power supply for several long weeks.

Despite tax cuts and the lowest mortgage rates in decades, consumers were reluctant to spend. Nevertheless, the major chains remained convinced that bigger is better.

Following America's lead, stores got so large that at least one outlet is now offering maps for bewildered customers. Although it is still early days, shoppers seem to like the new mega-stores, flocking to new "destination centres" like Westgate and Albany in Auckland.

Ironically, strip shopping also made a comeback in some cities.
In Auckland, changed traffic flows and a nearby outlet mall revived shopping in Onehunga.

Other suburbs such as Howick also reported strong sales, while outside Auckland, strip shops in cities such as Hamilton also did a good trade.

The major disaster of 1997, the Maine Investments debacle, continued to make itself felt and Palmer's, like Levene & Co, was placed in receivership. It was rescued by Mitre 10.

However, no white knights turned up for discount clothing chain Dress For Less.

The company closed its doors in June and around 500 staff lost their jobs. Several of the company's suppliers were also badly affected.

The Hero chain also died, although many of its staff were rehired by new bosses, as its sites were snapped up by handbag chain Handbags International and Aussie clothing chain Just Jeans.

At the end of the year, the Georgie Pie fast-food chain was finally put out of its misery, to the dismay of its many loyal customers.

Tough times saw many retailers cut back on their advertising budgets, hitting advertising agencies and media organisations particularly hard.

The statistics tell the story. According to the latest data available from Statistics New Zealand, consumers spent almost $32 billion on retail goods and services in the first 10 months of 1998 - an increase of less than 1 per cent compared to the same period the previous year.

As in 1997, a big drop in the amount spent on cars was largely to blame, given that vehicle sales and servicing account for nearly a third of all money spent in the retail sector. Although sales picked up again mid-year following the removal of tariffs, the surge in demand was short-lived, thanks to the drop in the Japanese yen pushing prices back up.

Even with vehicle sales and servicing excluded from the figures, however, spending was up by only 2.2 per cent.

Once again, Auckland was hit hardest. With spending on cars excluded, sales were up by 1.5 per cent in the region. But with car sales included, less was spent in the region than in 1997.

Dealers in the Waikato also suffered. While other retailers experienced a very healthy 4.9 per cent increase in sales, lower car sales reduced the total figure to just 2.3 per cent. Wellington was less affected, and Canterbury was hardly affected at all.

In fact, an interesting trend emerged towards the end of the year.

The performance of the retail sector normally follows a similar trend in the North and South Islands. But from about August, the South Island started to boom, while the North Island lagged.

Of all retailers, department stores appeared to have had the best year, largely because they are now branching out into more and more categories of products, such as appliances and furniture.

The Warehouse, in particular, has many retailers wondering if there is anything they won't be selling at the turn of the century.

One product The Warehouse and other major chains didn't move into, however, was petrol retailing.

Fierce competition and the lowest crude oil prices in more than 12 years saw petrol prices drop sharply during the year, and once again, retailers' pain proved to be consumers' gain.

For publicly listed retailers, 1998 provided some spectacular highs and lows.

Retail has been seen by investors as a poor performer in recent times and with good reason. Three of the retail companies listed on the stock exchange hit rock bottom during the year: appliance retailer Pacific Retail Group, supermarket operator Progressive Enterprises, and Pizza Hut and KFC owner Restaurant Brands.

Clothing retailer Hallenstein Glasson also slumped to its lowest price in six years.

However, the only company's shares to end the year at a lower point than where they started was Restaurant Brands. The company began the year at $1.70, plummeted to as low as 64c, but recovered to $1.10 by the end of December. Although this is exactly half the price at which the shares were issued, it appears the only way now for the company is up.

In fact, by the end of the year, retail companies suddenly started to look appealing, if not downright sexy, for many investors. If you picked the right time to buy shares in retail companies in 1998, you could have doubled your money by now in almost every case.

Strong Christmas sales also appeared to confirm that the worst was over, and most retailers are looking forward to a much better year this year.

Such optimism also has no doubt been helped by the outstanding performance of two of this country's smartest retail groups: jeweller Michael Hill International and discount retailer The Warehouse Group.

After sinking as low as $3.11 in June, The Warehouse proved fears about the impact of the weak New Zealand dollar on its sales were wrong and ended the year at a record of $6.15.

Meanwhile, Michael Hill continued its rapid expansion in Australia, and also ended the year on an all-time high.

Both companies proved that you can buck trends if you know what you are doing - a sentiment with which many smaller retailers throughout the country would also agree.

"I think what's happening is the middle ground is disappearing," notes Retail Merchants Association spokesman Russell Sinclair.

"People are either buying on price with a relatively low expectation of service or they want to shop in a store that has quite a different ambience and positioning and lots of brands. Some of those stores are doing exceptionally well."

Pictured: No Sale - 1998 was a bad year for retailers, despite tax cuts and low mortage rates.