Westpac senior economist Satish Ranchhod says it’s been a solid year for the retail sector so far, with spending volumes in the year to September up 5 percent. He expects this strength to be sustained through the holiday period and into 2017.
“Spending is being supported by a range of factors: employment has been rising; despite recent increases, interest rates remain low; and the population is growing at the fastest pace we’ve seen in decades,” Ranchhod says. “On top of this, the weakness in dairy prices that had dampened incomes and spending appetites in recent years (especially in rural regions) has now dissipated. Put all those domestic factors together with a strong tourist season, and the outlook for retail spending looks very solid.”
Financial services company MYOB says 47 percent of local retail and hospitality report that they’re busier than normal for this time of year. Over the last 12 months, 32 percent have seen an increase in revenue.
BNZ’s latest Marketview report for online retail spending backs this up, indicating total online retail spending in October outperformed the same month in 2016 by 14 percent. Sales at local sites were up 11 percent, but online retail sales at offshore websites were very strong, up 17 percent on last October.
This isn’t wholly borne out by electronic card transactions in November, however. According to Statistics NZ, retail transactions in October rose 0.6 percent, but fell 0.1 percent in November.
Regardless, what seems to be a strong current performance is spilling over into optimism for 2017, with 44 percent of SMEs in retail and hospitality reporting to MYOB that they expect the economy to improve over the next 12 months. Just under half of the respondents believe they will see further increases in revenue, ahead of the national average of 42 percent.
MYOB New Zealand head of SME Ingrid Cronin-Knight says the retail and hospitality sectors are in good shape and she’s hearing positive sentiment from business customers.
“These sectors continue to grow and have really established themselves as one of the leading lights in New Zealand’s economy. Optimism is crucial and there is confidence from within the sectors that the positive trends will continue well into the future.”
There are some pain points, however. Funding this increased business is a concern, with 30 percent of respondents reporting they were under extreme cash flow pressure. This is a significant rise from 21 percent in June.
Other major issues include attracting and retailing customers at 27 percent; tax compliance obligations and competitive activity equal at 26 percent.
“While many businesses are busier than usual, they are still concerned about cashflow. Many of them are operating with tight margins so people should get out this season and support our retailers, restaurants, cafés and bars,” Cronin-Knight says.
High consumer confidence should support this call to action. Nielsen’s Q3-2016 Consumer Confidence Index indicated an optimistic 101, with five points added over the three months prior.
Ranchhod does sound a warning about household debt, however. He says that relative to incomes, household debt is at record levels, and this could act as a brake on spending over the coming years. With much of this debt leveraged against housing assets, Ranchhod warns that any shock to the housing market could weigh on household spending.