Cost pressure builds on small businesses

Belinda Fergusson, owner of Texan Art Schools. Photo / Supplied

Small businesses are facing rate and rent increases to add to their already rising costs.

Belinda Fergusson, owner of gift store company Texan Art Schools says increased rates could be problematic.

It was a two-fold issue, Fergusson said.

"... the landlord is just going to pass those increases in rates straight to us," Fergusson said.

"We also buy all our product from New Zealand suppliers and New Zealand artists so those people are also going to be looking to have to pass their costs on as well."

Fergusson has five Texan Art Schools stores in Auckland, in Newmarket, Sylvia Park, Botany, North West and Takapuna, and a home office.

"For little New Zealand businesses like us that support other New Zealand businesses it impacts the chain right the way along," she said.

"To be fair rates is just one of many costs that we pay and their not as significant as the rent component; it's that extra little per cent here and there that all adds up at the end of the day."

Fergusson said she was more worried about minimum wage increases.

Raising the minimum wage from $15.75 to $20 an hour by 2020 was a big cost for her company to absorb in the space of three years, she said.

As a result of a higher minimum wage the company could have increases at all levels "that could really impact a little business like ours".

Greg Harford, general manager of public affairs for Retail NZ, said small retail businesses were facing a brewing storm, with a combination of cost increases.

"There's often a misconception that businesses don't pay rates because they are paying rents instead, but in fact rents will include a component which is paying the rates," Harford said.

"The other impact on small businesses, particularly in the retail and hospitality sectors, is as rates are going up households have less money in their pockets to go out and spend, so again, what you are seeing is pressure on household spending that is ultimately flowing through to reduced spending in the retail sector as a result of domestic rate rises, which is pretty much lose lose as far as small businesses are concerned."

Hospitality New Zealand general manager Rachael Shadbolt said an increase in CV and a likely increase in rates was always hard on businesses.

"A large portion of hospitality businesses are not the owners of the building they operate from and therefore enjoy no equity gain on the increased value of that property, however their rent or commercial lease is likely to increase as the rates are passed on by the landlord," Shadbolt said.

"This could serve as a double blow for some of our commercial accommodation members in Auckland who will see an increase in their rates but also an increase in the recently introduced targeted rate on commercial accommodation."

Sue De Bievre, chief executive of Beany, said rates increases essentially took money from the productive sector and put it into the public sector.

"Most SMEs run on pretty tight margins and a rates rise inevitably impacts directly on their bottom line so they must either take home less money, increase their prices or cut some other costs - hire less people for example," De Bievre said.

"All of these effects have a negative impact on productivity of New Zealand business and potentially an inflationary pressure."