Retail trading slowed down in the first quarter of the year and retailers are concerned about the overall cost of doing business, an industry report reveals.

Retail NZ's Retail Radar report, a quarterly survey among retailers which canvasses issues and business senitment in the sector, shows 55 per cent of retailers did not meet their sales targets in the quarter ending March 31 - the worst result since the fourth quarter of 2017.

READ MORE:Challenges ahead for NZ's retail sector

For some retailers, prolonged periods of good weather and high numbers of tourists saw an increase in sales while in other parts of the country unpredictable summer weather coupled with business uncertainty weighed on sales.

Advertisement

Retailers across all regions say business and economic uncertainty were the biggest issues impacting the sector over the past three months and warn as the cost of business increases so too will the prices consumers can expect to see in shops.

Retail NZ interim chief executive Greg Harford said it was not known how much prices would increase over the next three months but the impact would be widespread affecting food prices along with discretionary retailers.

"The costs for retailers are increasing substantially," Harford said.

"The cost of labour is going up with minimum wage, that's going to affect the input price of all goods produced in New Zealand and that's particularly an issue around food, and it's likely food will start to become more expensive as those cost increases flow through."

Increased pressure on the value of imports with the fluctuation around the New Zealand dollar and higher business costs around insurance and compliance was putting a squeeze on retailers' margins, he said.

"The upshot of that really is retailers are increasingly suspecting that they are going to have to start passing those costs increases to consumers."

Harford said survey findings suggested price increases would affect all retailers.

"It's a really competitive sector and competitive pressure in the past has often kept a lid on price increases and retailers have been forced to absorb cost increases and therefore contributing to lower net margins over time. [This time] some of it will depend on what the different players in the market do and how they respond."

Advertisement
The sales target figure is our worst result since 2017 where we had 57 per cent of retailers not hitting their sales targets.

Electronic card transactions totalled $15.5 billion for the first three months of the year, according to payment terminal firm Paymark, which processes 75 per cent of the country's card transactions.

Spending rose to a seasonally adjusted 0.9 per cent versus the December quarter and was up 1.3 per cent when spending at fuel merchants were excluded. However, both rates remain below the average of the past five years.

Harford said the retail sector was still really competitive and pressure in the industry had not eased over the past year, Harford said.

"The sales target figure is our worst result since 2017 where we had 57 per cent of retailers not hitting their sales targets... there's strong competition for customer dollars not just from the retail sector. Consumers are having to choose whether they go shopping or whether they go out to dinner and so forth but there's still strong competition from overseas. That all has an effect on putting a lid on retailers ability to increase prices and generate additional profitability."

Greg Harford, interim chief executive of Retail NZ. Photo / Supplied
Greg Harford, interim chief executive of Retail NZ. Photo / Supplied

Not only is business confidence down, so is consumer confidence. Consumer spending is squeezed and there's pressure on household budgets with Council rates and insurance costs increasing.

Outlook for next three months

About two-thirds of retailers say they expect to meet or exceed their sales targets in the second quarter of the year, with the change of season and school holidays expected to get people out and about.

That being said, the survey found many retailers were concerned about increasing costs and a continued lack of confidence in consumer spending.

Most retailers said they were concerned about the effect the increased minimum wage and increased cost of doing business might have on the industry.

Forty per cent of retailers expect to increase prices in the second quarter, up from 30 per cent recorded in the last quarter.

Around 30 per cent of retailers say they plan to employ fewer staff in the quarter.