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Big shake, bigger loss: How Kaikoura retailers are coping

Small towns and big earthquakes don’t mix. The November 4th magnitude 7.8 quake devastated Kaikoura and surrounding areas on the South Island’s East Coast. As well as creating widespread devastation, its aftermath has resulted in a persistent financial burden for local business owners.

By Courtney Devereux | December 21, 2016 | News

A Patch of Country Kaikoura.

Early estimates of the damage from the November 14 earthquake near Kaikōura put the possible cost of repair and rebuilding work at about $2 billion.

Country-themed craft boutique A Patch of Country Kaikōura has suffered a massive loss in revenue after the quake. The store was severely damaged on the inside, with many items thrown onto the floor. The structure luckily enough was cleared and remains intact.

Owner Rachel Baxter says although she is receiving government help, the package isn’t quite enough.

“The money coming in is enough to keep things steady, but isn’t close to enough to replace items damaged or bring in any new stock.”

Rachel receives $1,300 a week, which accounts for her two full time staff and her single part-time staff member. Apart from government funding to keep her staff paid, Rachel is left to make profit from the sparse amount of business coming through as a result of the lack of summer trading.

“Revenue for us is down about 75 percent, possibly more. We are out of the way and cater a lot to tourists and the crowd of people that come in around this time of year. Without that normal summer rush our sales are almost nothing.”

Baxter, although in a tough financial situation, is making the most out of it and has started creating ‘Earthquake Survival’ kits, filled with blankets and towels for those who need it among the community.

Although the small business owners are the ones to receive government support, they are commonly the ones who suffer the most during the economic lull.

The quake and its aftershocks have, understandably, put off tourists from visiting the area. A whopping 27 percent of employment in the Kaikōura district relies on tourism, so a downturn in tourism is likely to have negative flow-on effects for other industries in the area as well. Many retailers are currently mourning the loss of their key summer trading period.

However, the government has stepped in temporarily -  businesses like Baxter’s, with no more than 20 employees in Kaikoura and the surrounding area, are set to benefit from a government relief package worth an initial $7.5 million over an eight-week period.

“It’s important to provide certainty for the affected businesses during what would normally be their busy summer period,” Minister for Economic Development Steven Joyce says.

“While good progress is being made restoring the southern access to Kaikōura, it will still be some weeks before both roads south are opened and operational for visitors. The road north will take a long time to be restored. The package is designed to assist those companies who had experienced a sudden, large and sustained drop in revenue to retain their staff while the district recovers.” says Joyce.

The extended support package will cover up to a total of sixteen weeks at a rate of:

  • $500 gross per week for a full time employee ($4,000 per person);
  • $300 gross per week for a part time employee ($2,400 per person);
  • Not be subject to GST (i.e. so employees get a higher net subsidy);
  • Be backdated to the date of the earthquake and employers can top up the subsidy.

Image source: Infometrics

The Government has also announced the business support package will now be available to businesses in Hanmer Springs and the wider Hurunui District which can show a sudden, large and sustained drop in revenue following the November earthquake.

"Cabinet has set aside $5 million more for the package overall in addition to the $7.5 million originally allocated," Minister of Social Development Anne Tolley says. “So far there have been 639 applications from businesses for the support, and $4.877 million has been paid out, with Kaikōura we realise that tourism is a large economic stand for business.”

Approximately 330 persons (FTE) are employed directly in tourism. While almost 700 people in the district work in businesses that are wholly or partly tourism-based, this flow-on effect is quite small, and reflects both the very limited business support infrastructure in Kaikōura and also the very low demand for external inputs in some businesses.

The significant drop in seasonal tourism has added to the strain for already hard-pressed small tourism-based businesses in Kaikoura. The town’s tourism trade hinges on State Highway 1 being operational, and with tourism spending worth almost $100m per, the government will place a very high priority on restoring the highway and enabling Kaikōura to get back on the tourism network ahead of next summer.

A permanent loss of through traffic would severely undermine the sustainability of the town and its tourism sector, more than it already has. With tourism making up 12 percent of its economy, it seems safe to assume that the negative effect of the earthquake on the district’s GDP will be proportionately greater than Christchurch suffered, particularly given that tourism represents just 3.3 percent of the greater Christchurch economy.

Consequently, a larger population decline in Kaikōura than in Christchurch is likely – but how much larger? Without sufficient employment opportunities in Kaikōura outside tourism, people may be forced to leave the town and look for work elsewhere.  As a result, we would not be surprised to see a drop of as much as 16 percent in population over the next 18 months. 

Struan Boot, owner of Alpine-Pacific Motel and Park Kaikōura accommodation says the decline in the tourist numbers has greatly affected the running of his business.

“Our motel fared well from the quake, only abut two rooms were written off. But our financial situation is definitely a lot more buggered than the rooms.”

Boot’s ‘buggered’ financial situation comes from the lack of visitors in what’s meant to be a peak season for his establishment.

“Revenue-wise, around this time of year we would expect weekly numbers to be around $6500-$7000 per ten days. But since November the most we’ve profited has been just under $3000 per week.”

And although $3000 is no short revenue for most self owned small businesses, this over 50 percent decline of revenue is a clear indication at the shortage in usual tourism business.

Boot’s business makes too much to qualify for the small business finance package, which qualifications apparently demand more than a percent 50 loss of usual revenue.

Three full-time staff have since left Alpine-Pacific Motel and Park Kaikōura accommodation, and are not the first to go.

Boot stated that his loss of staff came from the inability to give them hours and proper pay during the last few weeks since the quake. These employees are not the first to be downsized for the sake of business survival.  

Some of the small town’s larger businesses have been left with nothing, despite being among the worst hit.

“Because we don’t qualify for the government help, we are needing to downsize just to be able to pay rent for the place. It’s a real shame that the government funding has such a strict set of rules for it,” Boot says.

Alpine-Pacific Motel and Park Kaikōura accommodation isn’t the only business to meet complications from the November ordeal.

Jane Meder, an owner of a self-run illustration business based along the East Coast just outside of Christchurch has had to completely close her business for the year.

“All my equipment got ruined in the earthquake, and without it there isn’t any thing I can do. My business runs off commissions and invoices and without proper equipment, unfortunately I've made myself redundant.”

This ‘self-made’ redundancy isn’t uncommon around self-owned East Coast businesspeople who have no choice but to shut down until their affairs are in order.

The quake has caused a ‘second winter’ for East Coast business that rely on increased summer trading, with just over 20 businesses still remaining closed in Kaikōura alone.

There were about 1000 employees and sole traders operating in the area covered by the assistance package, and most would have seen a loss of business. The long term economic state of these East Coast businesses and townships is still unsure.

Minister Steven Joyce has admitted to the eight-week plan not being long enough, and will re-assess the financial packages after Christmas this year.

Joyce says: “The further eight-week extension is available for businesses in the Kaikoura district who face a dramatic drop in their turnover as a direct result of the earthquakes and the closure of State Highway One. This package will only scratch the surface and will be reviewed at the start of 2017.”

This year’s tourism summer season is completely written off with the road closure. Next season most businesses that have been affected will have to rebuild their brand from nothing. It will be three to five years before most can think about it being back where it was.

As they start to think about reopening, businesses with loss of earnings insurance are advised to use their insurance first before accessing the subsidy. Ensuring the financial stability of the property should be top priority, closely followed by keeping needed full and part time staff.

Many larger businesses have started using charity site Give a Little to elicit donations towards helping their business stay open. The official Give a Little Kaikōura page has already raised just over $25,000 in the last 30 days. Several funding pages have been set up for communities to help with relief efforts.

Although the East Coast towns have been through a lot since the November quake, spirits and efforts of small business are not deterred as they lead up to Christmas and a much deserved break.  

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