Consumer spending will grow at a historically average rate during 2016. However, averages can be misleading, with the composition of spending changing significantly over the year ahead.
Low dairy prices, rising unemployment, and weak wage growth are expected to see customers tighten their belts during 2016 with individual consumers unwilling to spend in the face of job insecurity and limited income growth.
However, even though it might be tough to upsell to individuals, the number of consumers will be rising strongly. A large inflow of students and workers are moving to New Zealand, while tourist arrivals will continue to surge upwards.
Retailers will rely on new customers in 2016.
Durable goods retailers are especially vulnerable from a slowdown in the housing market, with households unwilling to borrow as the labour market weakens. The associated drop in spending will be especially acute in areas where migrants aren’t heading and where farmers are major spenders – namely the provinces.
The falling dollar will be a mixed blessing for retailers. Although it will make domestic retailers more competitive with overseas online retailing, it will also push up the cost of products at a time when households will be especially sensitive to higher prices – making it difficult to pass on rising costs.
Retail in New Zealand is continuing to grow and we expect retail spending will continue to increase during 2016, but the market’s very competitive, domestically and internationally, and some retailers, particularly in the sporting, bikes and book sectors will continue to be squeezed by competition from offshore retailers.
The relative decline in the value of the New Zealand dollar will put further pressure on margins and will see some retailers begin to move prices in the New Year. Overall though, the economy continues to bubble along and consumers will continue to spend.
Overseas, we are seeing online shopping continue to grow and I expect that trend to continue in New Zealand as well, with click and collect services becoming increasingly sought after by customers. We’ll also see retailers strive to gain customers by continuing to become “destinations” rather than just places to buy goods. We might also see greater customisation of products, especially in the fashion sector, and possibly the introduction of new technologies, including biometrics in retail environments.
I’m also expecting more international brands to arrive in New Zealand, reflecting the increasingly global nature of the retail sector.
Key tips for 2016: keep abreast of what’s happening globally, keep building online and mobile channels and watch out for new entrants to the market.
New Zealand retailers enjoyed strong growth in spending through the latter part of 2015.But as we go into 2016, the economy is facing some significant headwinds.
Consumer confidence has fallen to low levels. In addition, there’s the looming risk of drought which could result in a dramatic hit to incomes in rural regions, with flow on effects for spending more generally.
But while the economy may be facing challenges, there’s still reason to expect that spending will hold up. The potent cocktail of strong house prices, low inflation and low interest rates will provide a significant boost to households’ spending power. And that’s coming on top of strong population growth.
This story originally appeared in NZRetail magazine issue 741 December 2015 / January 2016