We anticipate a slow, but probably not spectacular, increase in consumer spending in 2016. The key question though is: will that be spending on things or on experiences? We think more on the latter than the former.
In theory most retailers should be helped by favourable economic conditions for consumers. Low mortgage and interest rates, declining fuel prices, low-to-no inflation and close to full employment are providing working Kiwis with the confidence to spend. But where, and on what they spend, is changing.
Over the last 12 or so months we’ve seen a rise in spending on hardware and durable goods such as furniture and flooring. A lot of this will be maintenance spending that has been deferred over the past five or so years. It seems to correlate with rising house prices, notably in Auckland. These can be grudge purchases and perhaps it’s no coincidence that we’ve also witnessed a corresponding rise in the hospitality sector. We see no reason for that trend to slow in 2016.
Unfortunately a lot of non-food consumable categories, for example, apparel, books and stationery, footwear and department stores struggled to find sales growth in 2015. You see that reflected in the performance of many publicly listed retail chains.
A key driver of that is due to consumers spending more online, with overseas merchants. We expect that trend to continue in the coming 12 months. The growth rate will slow, but it is unlikely the amount spent will decline as consumers hunt for value online.
Although the dairy downturn has cast a shadow on the New Zealand economy, more recent developments show an improving outlook for retailers over the coming year. Consumer confidence is recovering, buoyed by continued solid demand for workers. Businesses are looking to hire staff, and jobs growth is encouraging households to spend.
But with wage growth still subdued there remains a degree of caution amongst households.
Customers are becoming increasingly price sensitive, which is putting pressure on retailers’ margins. Technology is contributing to the low inflation environment by making price discovery easier. The increasing use of online and mobile platforms to check and compare prices means businesses are finding it harder to raise prices.
However, technology also creates opportunities for new business models and poses a threat to traditional businesses, as can be seen with disruptions such as Uber and Airbnb. Technology is changing the way people shop and work, and it will be important for retailers to understand and use technology to adapt quickly to the changing needs of consumers.
Retail is a changing environment, driven by consumer demand and needs. Next year will be no different, and who really knows what the future may hold? Here’s our list of what we think will happen in 2016:
- The economy for New Zealand will remain robust with full employment.
- Small speciality retailers with commitment and a dedicated offering will do very well.
- Large format mixed category retailers will have a difficult first six months due to a long hot summer extending into early winter.
- David Jones in Wellington will be an outstanding success and be a major point of difference for Wellington’s CBD. Watch for some reaction from Farmers in the refurbishment and repositioning of its Wellington representation.
- H&J Smith will announce a successful result since its takeover of Arthur Barnett in Dunedin.
- Watch for a decline in bookshop numbers with more closures expected as the merchandise category continues to find trading competitive.
- Further pressure will go on the appliance, entertainment and electronic industry with some retailers having to close stores.
- Another year of “wait and see” for the Christchurch CBD as retailing continues to stutter.
- Online retailing will continue to grow despite any tax being imposed by the IRD.
- Trading hours will be lifted for Easter.
- Further international retailers will announce entry to New Zealand.
- Some concern will be shown at the over emphasis on retail environments at airports and their sustainability.
- DIY stores will continue to impact on retail with a wider range and competitive pricing policies.
Director digital strategy
So what's next for online retail in New Zealand? Continued strong growth buoyed by fibre penetration, decreasing data costs, smart phone ubiquity and digital literacy? Well, perhaps, but it isn’t quite as easy as straight line extrapolation if you want to stay competitive.
Recently in the UK we’ve seen Argos transform its proposition by aligning digital and in-store experiences. They're now allowing shoppers to choose how and when to shop, breaking out of a 'me too' market and transforming their bottom line on the way.
With a billion people logging into Facebook in a day, social commerce has definitely arrived. Winners in S-commerce understand customer ecosystems, not just channels.
How about mobile devices transforming customer experience by empowering floor staff with advice and real time inventory information? A killer app for this cannot be far off.
Keep an eye out for supply chain jumpers. If you think click and collect is enough, then just keep in mind the new kid on the block in European online groceries - none other than DHL.
This story originally appeared in NZRetail magazine issue 741 December 2015 / January 2016