SMEs are worried about how much the tills will be ringing this holiday season. Photo / Jason Oxenham
Cost of living and inflation woes are causing holiday blues for businesses as consumers watch their wallets.
This is leading to low confidence levels among small and medium-sized businesses (SMEs) ahead of the crucial festive trading period, according to a new survey.
And many SMEs will be forced to hike their prices over the next six months in another blow to consumers.
MYOB’s latest SME Holiday Trading Snapshot – a nationwide survey of over 500 local business owners – found just 18 per cent of SMEs expect their revenue this festive trading period to be up on last year’s performance, even with the removal of Covid restrictions.
Meanwhile, more than half (55 per cent) expect their revenue to be on par with last year, and 22 per cent say it will be lower.
Nearly two-thirds (62 per cent) of the country’s SMEs are not expecting an increase in demand or sales over Christmas and New Year.
MYOB spokeswoman Jo Tozer said a strong performance this holiday trading period will be crucial for many New Zealand businesses.
“Our insights show that one-in-five operators see the festive holiday period as being very important to their business’s annual revenue,” she said.
“While Covid restrictions are no more, local SMEs find themselves faced with other economic challenges this festive season.
“From higher operating costs and consumers watching their wallets more closely as inflation and the cost of living continues to pinch, this Christmas will be tough for many business owners.”
Consumer spending behaviour was also contributing to lower confidence for SME owners.
Forty-three per cent of businesses polled said customers had become more cost-conscious, while 29 per cent said customers appear to be buying less.
“The rising cost of living has made an impact on Kiwis’ Christmas plans, with 30 per cent planning to spend less on gifts than they usually would, and 30 per cent expecting to spend less on dining out over the festive season, while others are cutting back on how much they want to spend on goods like food and drink,” Tozer added.
“It’s evident from our latest SME insights that businesses are seeing and feeling these changes to consumers’ spending plans as more New Zealanders tighten their purse strings. Unfortunately, it’s coming at a time when many SMEs would have been hoping for a boost to their bottom line.”
Meanwhile, inflation looks set to play the Christmas Grinch for both businesses and consumers.
MYOB’s holiday snapshot revealed more than half of businesses (56 per cent) intend to increase the prices they charge for goods or services in the next six months. This was higher for Auckland businesses at 62 per cent.
Inflation (70 per cent) and increased operational costs (54 per cent) were the top two factors contributing to price rises.
But there’s nothing like the silly sales season to get consumers in the mood.
Figures from product comparison site PriceSpy suggest some early reprieve could be coming for businesses in the lead-up to the holiday season.
PriceSpy’s Black Friday Report revealed 53 per cent of Kiwis intend to buy this Black Friday, though this was 12 per cent lower than that of last year’s survey.
And those who are intending to shop are looking to spend $731 on average.
This was higher than the $464.50 Kiwis intended to spend in 2020.
Last year’s Black Friday generated $248.2 million for retailers over the four-day shopping period, according to Worldline.
“Even though less people intend to shop this year compared to last year, surprisingly the average amount people expect to spend is still a lot,” said Liisa Matinvesi-Bassett, New Zealand country manager for PriceSpy.
Matinvesi-Bassett said no one is immune to the cost of living crisis.
“With consumers and businesses both facing economic uncertainties, we expect this Black Friday season to look a little different,” she said.
“Our latest insights strongly suggest that the cost of living crisis is causing alarm amongst Kiwis, with many feeling the financial burden of price rises.”
According to PriceSpy’s Black Friday Report, which surveyed 500 Kiwis, 95 per cent said they have noticed price increases across consumer goods, fuel and grocery items.
“As consumers try to navigate the cost of living crisis, one reason why shoppers are looking to spend so much across this year’s Black Friday and Black Week, is to make the most of the discounts offered,” Matinvesi-Bassett said.
“Shoppers may also be using the sale season to shop smartly, buying the bulk of their Christmas gifts earlier when prices are lower. This shopping tactic also helps to spread the overall cost over two months.”
The pre-Christmas sales bonanza kicked off last week with Singles Day – the Chinese e-commerce holiday that is quickly sweeping into other markets – and will be followed by Black Friday (November 25) and Cyber Monday (November 28).
“Customers love a good deal, and November has become a significant month for retail sales,” Retail NZ chief executive Greg Harford told the Herald.
“Collectively, these sales opportunities are great opportunities for customers to get some really good deals ahead of the busy December shopping period.
“They are critical for retailers to know that they are getting ahead of the curve before Christmas, and are particularly important for business recovery, given the difficulties of lockdowns in Auckland this time last year.”
Harford said this year is likely to see even more interest in the sales days than usual.
“The current cost of living crisis is putting real pressure on many Kiwi households and in a difficult environment like the present, sales days are likely to be very popular,” he said.
Beyond the festive season, the outlook for 2023 wasn’t much sunnier for local SMEs.
Sixty-one per cent of SMEs surveyed by MYOB said they believe the New Zealand economy will decline in the next 12 months.
The biggest factors driving this view were the cost of living (62 per cent) and the level of inflation (54 per cent).
Inflation remains embedded into the economy, and most recently came in at 7.2 per cent for the year to September. Domestic (non-tradable) inflation rose from 6.3 per cent to 6.6 per cent.
Rising interest rates (40 per cent) and Government spending (17 per cent) also weighed on SME confidence.
Market pricing and most bank forecasts have priced in the Official Cash Rate (OCR) – currently sitting at 3.5 per cent – peaking at just over 5 per cent, though not everyone believes it will get that high.
The Reserve Bank will deliver its next monetary policy decision on November 23, where it will likely hike rates by 50 or 75 basis points.
“Given the very real challenges small business operators are facing currently, it’s understandable that many are taking a ‘glass half empty’ view of the economy at the moment,” Tozer said.
“Shortage of skilled employees, supply chain disruption and consumer confidence are also other factors that some SMEs have told us are on their mind as they consider what lies ahead over the next 12 months.”
Recruitment specialists HainesAttract says there is a degree of complacency.