Relax, winter will bite into inventories

  • Opinion
  • July 19, 2016
  • Warren Head
Relax, winter will bite into inventories
Image: Kerryn Smith

The country’s record-breaking warm weather generated forecasting havoc in the retail sector.

You could sense the satisfaction of retailers when Wellington had its hottest February on record, boosting summer sales. The second warmest autumn on record in March and May would’ve caused some lip-biting for apparel retailers.

Inventory cleared faster last month, starting in the south. There was an expectation that outdoor retailers such as Kathmandu would fell the warm autumn weather, but Kathmandu only recently brought its winter range in-store.

Rest assured in June and July it will again be winter. This is when Kathmandu will hold its winter sale. The first snow was falling lower in the high country as I wrote this column.

Yet it is evident that core sales volumes (excluding fuel and auto sales) underscored a slowing trend of one percent for the March quarter, with seven of 15 sectors contracting.

Apart from the weather, the summer saw building consents falling off. The effect on mortgage payments of the mind-blowing ratio of property values in Auckland and Central Otago versus annual household income (9.5x and 10x respectively) might account for the falling sales of furniture.

House prices would drive you to drink on both sides of the buyer and seller equation. Food and beverage services jumped to 1.3 percent quarterly growth from 0.7 percent.

Yet Auckland’s economic momentum is accelerating and it was the top retail region in the first quarter. The South isn’t far behind and Canterbury is keeping up. However, of six regions, only three are in positive territory.

ASB economist Daniel Snowden said the retail sales report highlighted why further rate cuts are needed. “At face value, 0.8 percent quarterly growth in volumes may seem pretty robust,” said Snowden. However, accounting for the strong growth in population, strengthening tourism and the building boom, the retail lift is moderate, he said, suggesting that retail spending momentum has slowed from the growth achieved over mid-2014 to mid-2015.

The best performance by a major retailer this autumn has been by Briscoe Group, with strong same-store sales growth and margin expansion. “Rebel Sport continues to impress, while homeware also reported an acceleration in same-store sales growth,” says Chelsea Leadbetter, retail analyst at Forsyth Barr. Margins and profit are tracking ahead of last year.

Meanwhile, tourism’s rapid growth (+20 percent lift in arrivals in the last two years) will be helping resort areas and retail in airport precincts.

The 2015 to 2016 period has been a honey of a year for Comvita, the processor, exporter and retailer of Manuka honey products. Exports helped Comvita to a 68 percent higher annual profit of $17.2 million.

New Zealand sales were flat but only because Comvita pulled some of its products from the big supermarket chains, impacting on sales growth and margin.

Leadbetter commented that sales were made through other higher-margin channels, including the company’s own retail stores. Comvita’s store at Auckland Airport was a great performer thanks to the growing numbers of visitors from China (+34.4 percent in the full year of 2015, with 355,904 arrivals).

Customers also now have the opportunity to experience the pristine source of this Kiwi retail success via a virtual reality (VR) experience in Comvita’s retail stores at Auckland Airport, the Viaduct and at Experience Comvita in Paengaroa.

Virtual and augmented reality was a strong theme at the recent Tripartite Economic Summit in Auckland. The talk was that 360 degree visuals will soon be on smartwatches, which you will use like a cursor.

This story originally appeared in NZRetail magazine issue 744 June / July 2016

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