Muted spending growth - the Grinch that stole Christmas

More retailers missed their sales targets than met them in the last quarter. Photo / 123RF

More retailers missed their sales targets than met them over the all-important Christmas trading period, despite Black Friday driving increased sales, the latest industry report shows.

Retail NZ's quarterly report shows 55 per cent of retailers did not meet their sales target over the past three months, with overall sales down 7.6 per cent in October and 2.8 per cent in November compared to spending recorded a year earlier.

Spending in December, however, was up 4 per cent.

While the report credits Black Friday for driving an increase in spending in the lead-up to Christmas, respondents in the survey reported that their margins were hit by "cut-throat competition" in the quarter.

"Strong sales results were reported at key shopping periods such as on Black Friday and on Boxing Day, but overall, the picture for the quarter was less rosy," Greg Harford, chief executive of Retail NZ, told the Herald.

"We expected the quarter to be a little bit more positive than it turned out to be ... It shows just how much pressure retail has been under and how much pressure consumer budgets have been under. Unquestionably there was huge spending around Black Friday but a lot of that was simply shifted from other points."

Spending growth in the quarter was modest. Harford put this down to discounting, and consumers "feeling nervous" about the economy.

"Consumers budgets are really squeezed, they've got lots of non-negotiable expenses increasing; petrol taxes, council rates, insurance bills, etc, and that has flow-on effects, reducing the amount of discretionary spend people have."

Annual growth in retail and core spending in 2019 was higher than that of the "lacklustre 2018 year", but remained lower than historical averages, ASB said in a note last year.

While the final quarter of 2019 was mixed, ASB senior economist Mike Jones said there were signs of spending starting to pick up.

"Some of the factors dragging on retail spending last year were things like contracting tourism spending, falling population growth, and people were generally quite cautious through 2019, we saw it in the likes of business confidence.

"What we've got now is almost a trifecta of positives for spending. Wage growth is starting to pick up, we've got really low interest rates so households are getting some mortgage rate relief in their back pocket, and the housing market is very clearly picking up - for better for worse, Kiwis' spending habits are very closely linked to the value of their house and so with house prices rising again, particularly in Auckland, I think Kiwis will be much more inclined to go out there and open up the wallet."

Forecast for next three months

Retail NZ's Retail Radar report shows retailers are optimistic about the three months ahead, with summer and peak tourist season in full swing, but the outlook for hiring intentions was "a little worrying", Harford said.

27 per cent of retailers say they are planning to reduce staff numbers over the next quarter, the report outlined this was the result of higher wage rates.

"We are seeing employers, particularly in retail, looking to drive efficiency, become more productive and reduce staff numbers as a result and a lot of that is driven around the fact that the market is almost flat.

ASB senior economist Mike Jones. Photo / Supplied

"Cost are increasing across the board and wages unfortunately are a big cost for retailers and something that they can reduce."

The minimum wage is set to increase again in April to $18.90 per hour.

"Employers, particularly in the retail sector where average net margins are really low, simply can't afford to pay more if there isn't increase in business coming in the door."

ASB anticipates "solid growth" in consumer spending in 2020, with the signs for retail looking good in the first quarter.

"We'll start to see retail sales growth pick up back towards historical averages," Jones said.

"Overall, we think 2020 is going to be a slightly better year for the economy, businesses are feeling a little bit more confident, retail spending is picking up, the housing market is probably going to head into outright strong territory. We still think we're in this slow and low growth environment but 2020 is going to be a better year than last year."