Retailers worrying over rising costs hitting profitability

AUCKLAND: Retail trading slowed down in the first quarter of the year and retailers are concerned about the overall cost of doing business, an industry report reveals.

Retail NZ’s Retail Radar report, a quarterly survey among retailers which canvasses issues in the sector, shows 55% of retailers did not meet their sales targets in the quarter ending March 31 — the worst result since the fourth quarter of 2017.

For some retailers, prolonged periods of good weather and high numbers of tourists saw an increase in sales while in other parts of the country unpredictable summer weather coupled with business uncertainty weigh on sales.

Retailers across all regions say business and economic uncertainty were the biggest issues impacting on the sector over the past three months and warn that as the cost of business increases, so too will the prices consumers can expect to see in shops.

Retail NZ interim chief executive Greg Harford said it was not known how much prices would increase over the next three months but the impact would be widespread, affecting food prices along with discretionary retailers.

‘‘The costs for retailers are increasing substantially,’’ Mr Harford said.

‘‘The cost of labour is going up with minimum wage, that’s going to affect the input price of all goods produced in New Zealand and that’s particularly an issue around food, and it’s likely food will start to become more expensive as those cost increases flow through.’’

Increased pressure on the value of imports with the fluctuation around the New Zealand dollar and higher business costs around insurance, compliance was putting a squeeze on retailers’ margins, he said.

‘‘The upshot of that really is retailers are increasingly suspecting that they are going to have to start passing those costs increases to consumers.’’

Mr Harford said survey findings suggested price increases would affect all retailers.

The sales target figure is our worst result since 2017 where we had 57% of retailers not hitting their sales targets.

‘‘It’s a really competitive sector and competitive pressure in the past has often kept a lid on price increases and retailers have been forced to absorb cost increases and therefore contributing to lower net margins over time. [This time] some of it will depend on what the different players in the market do and how they respond.’’

Electronic card transactions totalled $15.5 billion for the first three months of the year, according to payment terminal firm Paymark, which processes 75% of the country’s card transactions.

Spending rose to a seasonally adjusted 0.9% versus the December quarter and was up 1.3% when spending at fuel merchants was excluded. However, both rates remain below the average of the past five years.

The retail sector was still really competitive and pressure in the industry had not eased over the past year, Mr Harford said.

Not only is business confidence down, so is consumer confidence. Consumer spending is squeezed and there’s pressure on household budgets with council rates and insurance costs increasing.

About twothirds of retailers said they expected to meet or exceed their sales targets in the second quarter of the year, with the change of season.

That being said, the survey found many retailers were concerned about increasing costs and a continued lack of confidence in consumer spending.

Most retailers said they were concerned about the effect the increased minimum wage and increased cost of doing business might have on the industry.

Forty percent of retailers expected to increase prices in the second quarter, up from 30% in the past quarter. About 30% said they planned to employ fewer staff in the quarter.