Testing times in store for retailers

Wary consumers, wage rises, artificial intelligence and heavyweight competition: Catherine Harris looks at the year ahead for the retail sector.

Every year is a tough year in the retail industry, and 2019 is shaping up to be a doozy.

New brands continue to arrive, glitzy new centres are about to give Aucklanders a thrill, but at the same time, consumer confidence seems like it’s at a crossroads.

If Australia is any gauge, it could be hard slog for many retailers. Magazine Inside Retail suggests 2019 will be a crucial year for many large brands as they mount turnaround plans to reverse their failing fortunes.

Back home, some retailers are still grappling with selling over the web, and the rapidly changing habits and expectations of their customers.

Christmas, which is often taken as a portent for consumer sentiment for the year ahead, was sluggish.

‘‘The sector’s greatest concern will be around a softening economy driven by consumer confidence,’’ Chris Wilkinson of First Retail Group says.

If recent electronic card data is any indication, consumers sat on the sidelines for the whole December quarter. Total retail for December was down 2.3 per cent on the previous month, much lower than expected – though it inched up 0.6 per cent on a year ago.

ASB senior economist Mark Smith put it down to a steep fall in fuel prices in recent months but also lower spending in clothing and non-food retail.

Already data from Kmart and Kathmandu suggests Christmas was softer than usual, and that makes the fashion sector in particular nervous.

‘‘2019 could be a testing year for the retail sector,’’ Smith said. It will be clearer when Hallenstein Glasson and The Warehouse release their Christmas sales data.

The Black Friday phenomenon, sharemarket volatility and a becalmed housing market could be other explanations for the festive flatness.

So even though fuel prices and mortgage interest rates are low, job security is high, exports are still strong and the Government’s Families Package has put more dollars in the wallet – it feels like consumers were more circumspect.

Greg Harford of Retail NZ says his forecast for 2019 is more of the same – ‘‘relatively soft consumer demand’’.

‘‘Household budgets continue to be squeezed by things like higher council rates, insurances, and, of course, the Auckland petrol tax.’’

Consumers still need household basics and want to go leisure shopping, but will be looking for the best deals.

Wilkinson says category killers such as Chemist Warehouse will have an impact beyond the pharmacy, such as on supermarkets.

The arrival of more brands such as Sweden’s Ikea will also continue, as the Australian market fills up, he says.

‘‘We’ll also see consumer experiences, new to New Zealand emerge, that will capture consumers’ attention – and dollars.’’

Fashion giant H&M is expected to continue its expansion, challenging others in the clothing and homeware markets with its sheer scale.

And while Ikea has said it will take a few years to settle down here, another of the world’s biggest retailers, the bulkbuying monster Costco, is also rumoured to be looking around.

Meanwhile, Kmart continues its rollout across the country, putting The Warehouse on notice. Both will be using this year to keep ahead of the game before Ikea arrives.

Businesses also face a minimum wage hike in April, which is likely to carry over into the price of food and retail goods over time.

And the advance of AI continues although it’s more likely to take the form of software than robots on the shop floor.

Venture capital firm Goat Ventures chief executive Shaveer Mirpuri told Inside Retail he expected AI to play a larger role in merchandising, with stores using it increasingly for selecting stock, setting prices and general inventory control.

‘‘Hopefully, this will help revitalise how consumers feel about the physical store shopping experience and crush the nonsense that in five years, physical retail will be completely gone,’’ Mirpuri said.