Pressure on retailers not letting up amid Smiths City, Kitchen Things difficulties

Retailers continue to grapple with increasing costs and weaker consumer demand. Photo / 123RF

Difficult trading conditions and lower consumer confidence are creating the “perfect storm” for squeezed retailers.

It comes as two big retail chains face an uncertain future in the space of a fortnight.

Today, the more than 100-year-old retail chain Smiths City went into voluntary administration amid increasing financial pressures, while Kitchen Things was tipped into receivership almost two weeks ago.

Retail NZ chief executive Carolyn Young told the Herald pressures on businesses weren’t letting up.

“It just continues to be really tough, [retailers] can’t get away from that.

“It’s a cumulative factor, I think that’s the biggest challenge. We’ve had two or three years of really difficult sales environment where we’ve seen downturn in trade.”

Young said businesses continue to grapple with cost increases, including insurance, rates and freight.

“The pressures are on from every space,” she said.

“We know that consumer confidence is still low and for discretionary spend, we need to see that higher.

“If you’re not selling as many items and your cost base is increasing, you’ve just got this squeeze that’s the perfect storm that’s making it really difficult.”

Young said the New Zealand economy has been sluggish to respond to the 250 basis points (bps) in cuts so far to the Official Cash Rate.

“While the unemployment figures are still going up, we’re going to see a longer tail in this recession.”

Young said it was a “tale of two halves” right now between rural and urban.

“Rural areas that are impacted by farming and dairy prices are doing better than the urban areas.

“Clearly Auckland and Wellington are really struggling.”

Young said she was “optimistic” the tide will turn next year.

“I just think it’s slower and taking longer than anticipated. It doesn’t feel like we’re going to see a quick rebound where things will improve significantly over a short period of time.

“I think it’s going to be a slow burn that’s going to take a while, which will continue to put pressure on businesses that have used a lot of their reserves already.”

She said November, December and January were critical months in the lifecycle of a retail business.

“That three-month period is the survival period for businesses. If they can get to there, have a strong sales cycle at that time, then they will be able to survive another year, probably,” Young said.

Retail NZ’s second-quarter Retail Radar report found 62% of retailers failed to meet their sales targets in the previous quarter.

The survey revealed that 69% of retailers are confident or very confident their business will survive the next 12 months – an increase from 57% in the same quarter last year.

Cameron Smith is an Auckland-based business reporter. He joined the Herald in 2015 and has covered business and sports. He reports on topics such as retail, small business, the workplace and macroeconomics.