Retail sales plummeted in April and the loosened lockdown restrictions haven't improved the outlook for the month ahead.
Retail NZ says online retail sales are up 350 per cent under Alert Level 3, but overall sales are down by about 80 per cent on average.
This follows sales in Level 4 lockdown which were also down 80 per cent.
Greg Harford, chief executive of Retail NZ, said sales had "collapsed" across the sector as uncertainty caused by the pandemic bites.
"Sales across the sector have collapsed and, even online trading, which has been permitted since last Monday, is not delivering sales that will allow retailers to recover from the economic carnage of the last few weeks," Harford said.
While sales at supermarkets have soared in recent weeks as they remained one of the few businesses permitted to remain open, overall sales in the sector have taken a dive.
Online sales in New Zealand, ordinarily, make up just 9 per cent of the country's annual retail spend. The majority of sales are made in physical stores.
Retail NZ estimates that closer to 30 per cent of all spending will be conducted online as the country moves out of lockdown.
The latest Retail NZ Sales Index shows sales were down 79.8 per cent and the fixed costs incurred by retailers continued to build.
Harford warned that the impacts of the pandemic would be long lasting for the sector.
"The Covid-19 restrictions will mean that the survival of many retail businesses is on a knife-edge. The wage subsidy has effectively kept many people employed in retail, but it is likely that we will see a wave of redundancies across the sector when that subsidy runs out," he said.
"Retail creates life in town centres and helps keep communities alive, but it is a low-margin businesss, with an average net margin of just 3.6 per cent. The financial impacts of the collapse in sales will last well beyond the lifting of Level 3 restrictions, and the reality is that the retail sector will need substantially greater Government support to retain staff and keep operating over the next period."
The retail sector is set to reduce in size dramatically as a large number of staff are expected to be let go and an unknown proportion of physical shops are expected to close.
"In the medium term we are likely to see number of physical stores to decline on the back of Covid-19. They'll be a number of retail businesses that don't survive and those that do will be looking very closely at their physical footprints and wanting to make sure that each store is driving value for the business," Harford told the Herald.
Uncertainty around how long the country would remain in level 3 lockdown and what was to be permitted in level 2 was making the situation worse, he said.
There are 27,000 retail businesses in New Zealand which employ 219,000 workers.