The Big Issues in Retail survey is a “health check” for the retail industry in New Zealand, says lead investigator Professor Jonathan Elms, who is Massey’s Sir Stephen Tindall Chair Professor in Retail Management. It’s compiled with honest answers from 70 retailers who are statistically representative of New Zealand’s entire retail industry.
“The main thing is so that we can provide an industry-based survey that could be looked and reported on, objectively as it could be coming from a university, and to highlight any opportunities or challenges that are faced by the industry,” Elms says.
When retailers are equipped with accurate and detailed data, they can then take strategic action against any concerns identified within, including appealing to the government where applicable.
“We try to look at how we could help the industry, working with people such as Retail NZ to politicise any issues that could be government or regulatory focused. Or to make the government much more aware of the certain issues that have been faced by the industry, and act accordingly.”
The survey covered a range of different concerns, thoughts, predictions, expectations and even foreseeable opportunities. Yet Elms highlights four sections which stuck out as a common issue within the results: the growth of online retail, international competition, upcoming government policies, and staff support and retention.
Insight one: Click and concern
Massey’s Big Issues in Retail survey reports that in 2018 compared to 2017, 8 percent more respondents strongly agreed that customers are beginning to shop through multiple channels. A growing number strongly agreed that their online website is the best practice and key driver of sales, compared to only agreeing with the statement in 2017.
Elms says the growth in the importance of online retailing should be seen as both a concern and an opportunity to leverage, more so as international players bring more competition to the sector.
“International players entering the Kiwi market is seen as a big challenge as well as an opportunity… We’re seeing smaller businesses taking it as a threat, because it is going to make them have to think and operate differently,” says Elms. “Bigger businesses are a lot more positive to what the implications of online are, they’ve got the resource and the capital to be able to do something more effectively compared to some of those smaller retailers.”
Store numbers aren’t expected to change, according to nearly 90 percent of respondents, and this is relatively consistent with last year’s report. More than half of retailers expect supplier order numbers to also remain static, compared with 42 percent in 2017.
Elms agrees that online retailing creates opportunity by encouraging brick and mortar stores to enhance their offering through online, yet he says he was surprised by the unwavering importance retailers place upon brick and mortar offerings – they remain the top-rated key driver to profitability and success.
“One of the things that still comes across strongly is the real uses and benefits of bricks and mortar retail. Particularly in the way of being the physical manifestation of the brand, and business see stores and store operations as the key driver to profitability and to success.”
The report shows that retailers have a growing confidence in their physical stores, with growth seen in almost every category of perceived quality of their store and website.
“It always surprises us, the role of those physical stores [for retailers],” says Elms. “It mirrors conversations we have with consumers as well who say, ‘Yes digital is fantastic’, but treat shopping is a social activity. People do it for enjoyment, walking around the mall and stores is still a lifestyle thing. No matter how good online retail becomes, it would be very hard if not impossible to emulate those social dimensions that we know are linked to shopping.”
The report backed up Elms’ comments. Retailers were asked to rate their agreement or disagreement with various statements about key sales drivers, of which ‘Our store operations are best practice’ had the highest rate of agreement.
Insight two: Rise of the retail giants
The Big Issues in Retail survey showed retailers consider ‘international competition’ to be one of the top eight challenges over the next 12 months. Other key challenges included ‘competing with the large international franchises’ and ‘international competition driving down pricing causing reduced margins.’
As more and more international businesses launch into the Kiwi market, Elms says, our homegrown retailers will need to work hard to leverage their local advantage. He explains that strong Kiwi retailers tend to have cross-country networks, compared with single-store flagships often opened by international brands, so while those internationals set up their networks, traditional domestic businesses will have the upper hand.
Elms says New Zealand businesses will need to improve to compete effectively with the internationals long-term, but he also points out that the arrival of these global players will create a sense of new excitement in consumers that benefits everyone.
“It creates competition which does keep the industry on its toes, from a consumer’s point of view it means more competition, more innovation, and a better shopping experience.”
Chris Wilkinson, managing director of First Retail Group, agrees: “If these new brands come, it will get consumers excited, and it does get people back into shops. There will be new brands entering our markets, creating new types of shopping environments, mixing shopping with contemporary food and dining, and drinking environments. Ones that people want to be part of and identify with.”
The Big Issues in Retail survey showed that almost 10 percent more retailers in 2018 agreed that customers are becoming more price sensitive, compared to 2017. Yet when asked if customers are becoming more demanding, 10 percent fewer retailers agreed with this statement than in 2017.
Wilkinson says international pressure is a warranted concern, mostly because of the scale of businesses that will be coming, and the issues they will create surrounding brand loyalty, lower price margins and incomparable capital expenditure at their disposal.
“Look at, for example, H&M,” says Wilkinson. “It has quite a different operating model and an absolutely huge scale which it can leverage, it has quite different occupancy models. So it is able to be more adventitious than what our Australasian business can achieve.”
Wilkinson says the biggest concern comes not from mass market suppliers such as H&M, Zara, Sephora or Ikea, but more so from luxury brands: those which have a model that’s unachievable for many local retailers.
“Luxury brands don’t need to make money; some will be here primarily for that presence and that brand profile. Yes, they want to make money downstream, but they will be prepared to have those years of growth purely because they can, and they’ve got those margins. In the luxury market there is a very different dynamic going on… They’re able to benefit from just gigantic economic scale that would be unachievable for Kiwi retailers.”
The Big Issues in Retail survey respondents conveyed a sense of being daunted in the face of difficult odds. Compared to 2017, more than twice as many respondents felt store numbers would decrease in the future.
Wilkinson admits that competing with international players will always be a challenge, as their capital is unmatchable, and our own economy is slowing down through consumer spending.
“For large retailers, they’ll be affected more because these big retailers comingover will take their profit directly… Any business that is selling consumer goods, that are only relying on legacy practices, are the ones that need to be worried.”
Yet even as New Zealand retailers’ small scale means they can’t operate with the same effectiveness as a global business, Wilkinson says localisation can also be Kiwi businesses’ biggest leverage point as, “understanding the New Zealand market will be their biggest challenge.”
Wilkinson says Auckland this year alone has the largest number of retail openings that have ever opened in a single year, driven by new shopping centres. Among the openings are 230 at Westfield Newmarket and 120 in Commercial Bay, plus further openings at the newly revamped Botany Town Centre. Wilkinson says it’s a golden time to be rethinking certain aspects of a retail offering.
“One of the things retailers of all sizes should be thinking about is what are the success elements that they can take from these big retailers. They can adapt in a Kiwi way, that will give them an edge as well.”
“Find the golden nuggets within these big businesses,” he says. “Find out how you can apply those in a scalable way to your business. No matter what size business you have, all internationals have lessons you can learn from.”
Insight three: Closer to home
It isn’t just international problems that concerned respondents to Big Issues in Retail, but new and upcoming Government policies and changes.
Retail NZ says industry concern about Government policies has been on the increase for five quarters now, which has translated directly into how businesses operate. Greg Harford, chief executive of Retail NZ, says uncertainty and lack of communication around Government polices creates the biggest challenge.
“Government policies are a very significant concern. It’s already made a number of changes which make things essentially harder for employers to take risks… The lack of clarity definitely doesn’t help. We often hear ministers say changes, like pay increases, will only be in effect for two to three most vulnerable sectors. But they don’t often expand. It would be helpful if the government could come out and officially rule out the retail sector, or rule in, so at least people know what they’re talking about.”
Harford says with changes at Inland Revenue, local council building permits and legislations, international competitive pricing, a rise in violent shoplifting crimes, and falling consumer confidence, “there is a lot to worry about already as a retailer.”
He pegs a lot of uncertainty in the sector on the new Labour Government. Its Employment Relations Amendment Act 2018 came into effect in May 2019, bringing changes such as the restriction of 90-day trial periods to businesses with 19 employees or fewer, and reintroducing employee entitlements to paid rest and unpaid meal breaks which were removed by National’s 2014 reforms. Union activity was also supported by several changes in the Act.
Further, the adult minimum wage rose to $17.70 per hour on April 1. New legal protections for those affected by domestic violence were also introduced on the same date.
“What they’re proposing is terrifying for a lot of retailers,” Harford says, speaking of the results of the Fair Pay Agreement Working Group. “They’re proposing sector wide accords, with exactly the same terms and conditions applying to every employee in the sector. So, for example you own a bakery in Invercargill, that may be struggling due to the economy down there, or you own a shop in Ponsonby or Parnell which is doing really well. Basically, the Government is saying that these employees should be paid the same, and that there should be no difference when taking into account different businesses or that different scales or success levels. And that is really worrying for employers.”
Harford says there is a lot of short-term pain and difficulty for retailers when it comes to updates in Government policies, and understands why it would be a growing concern for retailers.
However, he credits the Government for its move of closing the de minimus loophole. The existing system sees only items sold into New Zealand online for more than $400 subject to tax, which allowed offshore ecommerce retailers to sell significant quantities of goods into New Zealand without paying GST. Although these changes come into effect on October 1 2019, Harford says the change will not be the magic solution many retailers assume it will be.
“It levels the playing field in relation to GST. But it’s not a cure all, and it’s not going to suddenly transform the fortunes of a business struggling because of a lack of scale for example. The de minimus issue has been a big disadvantage for Kiwi retailers because they’ve still got to work hard to get those fundamentals right; to provide great product, services, and customer experience to get people through the door.”
Retail NZ offers support and information for all its members about the upcoming changes in Government regulations before they happen. Harford says joining a relevant trade association is the best way to be prepared for any policies that may require extra attention from business owners.
“But I think it’s really difficult a lot of times for small retailers to keep on top of issues that are put on them by the Government. Often if you’re running a small business, you’re wearing all the hats and you’ve got a lot on your plate. That’s when organisations can really help, as they can help lift some of that burden and tell you what you need to know and when you need to know it.”
Just staying aware of the concerns that might hinder business isn’t enough, he says, as in a 24-hour competitive shopping experience, owners need to be consistently agile in their models.
“We urge retailers to look closely at their business models, make sure they are delivering services in the most productive way possible, and doing things in the most sensible way possible. Make sure you’ve got the right people in the right roles, and just make sure they know they are operating in a very competitive sphere.”
Insight four: Jumping ship
The competitive reality of retail isn’t only found in battling for customer attention, but also the battle for employee retention. With retail demanding more from its workers, and fewer qualified people to fill the growing spaces, many employees have their pick of the prospects.
Staff retention rates are the biggest future challenge according to the Big Issues in Retail report, almost doubling in importance from 2017. Staff retention has been a consistent cause for concern in retail, and Anya Anderson, founder of RedSeed recruitment, says this is warranted.
“It’s not surprising that retention rates are one of the biggest issues coming up,” says Anderson. “We’re seeing this as an issue for a lot of retailers. There is so much more mobility, people now can easily move between jobs, it’s no longer frowned upon. In some ways having multiple jobs over a relatively short period of time is seen as a good thing. It’s also a way for people who are ambitious, being able to move up the ladder quicker.”
“Now people are more likely to move to another retailer for a higher positioned role than wait for an opening in their own store.”
The generational divide plays a big role in how staffing has changed over the recent years. Anderson feels younger staff now have an entrepreneurial mindset, expecting progress to happen quickly and successfully, and aren’t as interested in “doing the hard yards.”
“Those younger staff want to work at 40 hours and that’s it. They want more of a balance.”
Flexible working has stayed as a constant immediate challenge for both SMEs and large businesses in both 2017 and 2018.
Training itself plays heavily into retention rates. Anderson says retailers who invest in staff training often have a better chance of those staff valuing their business, meaning they won’t have to bear the financial burden of replacing staff.
“Yes, there is just the figure for cost, but you may also have to pay a recruitment fee. Then they don’t realise often that the current team are now short staffed, which leads to frustration within the team. The customers miss out on the experience because you’re short staffed. There is also that lack of knowledge and it does take a long time to build up that knowledge and train someone new.”
In Big Issues in Retail, training and retention is increasingly represented among the largest immediate challenges for medium and large businesses. In 2018, respondents cited these challenges at a 15 percent higher rate than 2017 for large businesses, and held steady for medium businesses.
“Coaching and support is one of the biggest areas of weakness that we see,” says Anderson. “All the way up organisations right through to executive, there is not a lot of support for people. Typically, people are left to their own devices, most people fall on their feet, but some will not. And that is always seen in the results of the store.”
Survey results showed that coaching, mentoring and support has jumped in importance as a future challenge for large retailers, going from just over 10 percent in 2017 to just under 50 percent in 2018. Smaller retailers see it as less of a challenge in 2018, which could relate to tighter knit teams, while medium businesses saw it as a growing immediate challenge (from 35 percent in 2017 to 50 percent in 2018).
“Lack of support and development in that area is a major spot of weakness, and loss of opportunity,’ says Anderson.
She attributes loyalty from employees to good managers, saying they are not necessarily being loyal to the business. Yet Anderson says creating loyalty needs to happen in a supportive environment, where loyal bonds can form. The report backs Anderson’s claims that there has been growing support towards managers’ decisions in every section of the ‘perceived quality of managers decision making’“It’s all the subjective things that add up: they need to feel like they’re making a difference, so they need to understand what the greater goal and value set of the business is. Sometimes those things are not articulated well within the business. It helps people feel like they’re connected to something bigger.”
She says communication within retail teams can make a difference, as it opens up avenues for future support, training and coaching which “builds a much stronger relationship between that manager and that team member.”
“You have to create an environment where people feel valued… It’s about investing in your people, and that’s not always monetary, it can just be about having conversations and checking in. Making sure that you are taking the time to train and support these people.”
The heart of retail
We’ve never seen New Zealand retail as dynamic as it is now. It is constantly changing to align with consumer demands, and retailers need to be incredibly agile in their responses to their concerns. Yet Massey’s Elms says despite rising concern in certain areas of the sector, the results of the latest Big Issues in Retail survey were more positive than he was expecting.
“In terms of the main themes coming out, I don’t think there is anything too controversial or not expected, particularly when looking at the results from the previous years.”
Elms agrees with Anderson that retail is about people, from the customers you value to the retail staff you trust with your business: “Retail is a people business,” he says.
“You need to look after your people as much as you possibly can and invest in them as much as you possibly can. The situations to our concerns are only going to get more and more difficult, and if you don’t have the people at hand to run the business, there isn’t going to be a business to run.”
Elms says the survey results will help make retail further understandable for those involved within the sector.
“This piece of work has been done with the very best intentions, to help support the industry and the issue that they’re being faced with on a wide level, to try and make a difference to business and to the Kiwi way of life.”
The Biggest issues in Retail for 2018 was taken out by the Centre for Advanced Retail Studies (CARS), Massey Business School, alongside the Retail NZ Association. To get involved and have your say on what affects your retail businesses the most, or for general advice, get in touch with Centre for Advanced Retail Studies.
This story originally appeared in NZ Retail issue 762 June/July 2019