Spending in May was down by 12.7% compared to same time last year. Photo / 123RF
Spending in May was down by 12.7% compared to same time last year. Photo / 123RF
A new report looking into the state of the retail sector reveals a grim outlook.
Approximately 6700 retail businesses are at risk of closure during the rest of the year, but even more shockingly, 17,100 could shut up shop for good as a result of Covid-19.
Of the some-27,000 retailbusinesses in New Zealand, just 10,000 are understood to be in a stable financial position.
New Zealand's retail sector continues to face severe pressures due to the pandemic, Retail NZ chief executive Greg Harford told the Herald.
Throughout March and April, revenue in the sector was down an average of 80 per cent. In May, as the country moved to alert level 2, overall sales were down 12.7 per cent compared to the same time last year, the latest Retail Radar report shows.
A survey of Retail NZ members found that 24 per cent of businesses either expected to cease trading or were not confident they could continue, and a further 37 per cent said that their survival hung in the balance.
The perception that shops were open and trading again and therefore performing well was far from the reality for most operators, Harford said. The realities of the situation could be seen by the number of announced store closures by large retailers over the past month.
"Margins are so tight across the sector that many retail businesses will be unable to recover from the lockdown."
The majority of businesses now facing closure were operators that were doing okay prior to the pandemic and subsequent lockdown, Harford said.
"Having lost two months' revenue and moving into an uncertain trading environment, where consumers aren't spending as much as they were pre-Covid, puts them in a very difficult position."
It was concerning that just 10,000 businesses said they were confident or in a stable financial position, he said.
"Retail has been difficult for a long time - margins are extraordinarily low across the sector and it is very challenging at the best of times and you throw Covid into the mix and it becomes next to impossible."
New Zealand's retail sector took about five years to recover from the Global Financial Crisis in 2007-2008. Covid-19 has had a far greater impact to the sector, and Harford believes it could take a decade for a full recovery.
Source: Retail Radar Report
The sector needed more financial support otherwise it would inevitably face mass closures. It desperately needed continued wage subsidies and a rent relief, he said.
The wage subsidy extension was not an option for a large number of struggling businesses due to the renewed requirements of a 50 per cent reduction in revenue from 30 per cent.
Retail also needed a "healthy dose of fiscal stimulation", Harford said: "We need to get consumers out there confidently spending, and whether that comes through tax cuts through helicopter payments or other measures the Government got, we need to have consumers feeling confident enough to get out and support local businesses."
Michael Hill last month announced it would close nine stores, 3 in New Zealand. Photo / File
Consumer confidence has fallen by about 50 per cent over the past two months, according to the ANZ Roy Morgan Consumer Confidence Index.
There was some improvement in May, though consumer confidence is still down 20 per cent from what it was in February.
The reduction in consumer confidence had already started to flow through to store closures within the sector, Harford said.
H&J Smith Group has announced it will close some of its South Island stores, this follows similar moves by Bunnings, Smiths City, Michael Hill and The Warehouse, among others.
Retailers were now in the phase of "taking steps to try and survive", Harford said.
Job losses
Retailer confidence is waning and the outlook for the short term is expected to bring about 16,800 job losses within the sector, the Retail Radar report outlines.
As of May, 7500 jobs within retail are expected to be lost.
