Cameron Brewer: Winter of discontent for retailers

In up-market Newmarket we've got a few vacancies on Broadway - a strip traditionally known for its high occupancy rates. Photo / Richard Robinson

Opinion

I once read a report where the average New Zealander spends $1.13 for every dollar they earn. Over the past two years people have reduced their debt but nonetheless Kiwis mostly still spend every dollar they have.

With essentials such as petrol, electricity and car registrations going up in price, it means only one thing for the country's retailers - people have less money in their pockets to spend on more discretionary items.

It doesn't mean people will be saving less because as we know we're not a country of savers. Since July 1, people's pay packets are now running out quicker.

This winter is proving to be very difficult for the country's retailers. The economic recovery has been slow, we're seeing rising interest rates and inflation while business and consumer confidence remains very wobbly.

In Auckland a lot of uncertainty remains as we head towards the biggest local government election in our history.

Let's not forget that nearly 8000 public servants in the Auckland region all have a big question mark over their future roles, if they have one.

Good news will come in October with across-the-board tax cuts but we've got to get through this winter first. In up-market Newmarket we've got a few vacancies on Broadway - a strip traditionally known for its high occupancy rates. The last time we had a few gaps was in the early 1990s when unemployment hit double figures.

This time we haven't got the unemployment but we are seeing massive erosion in people's spending power and confidence.

Statistics New Zealand's latest retail sales figures across New Zealand showed a fall-off in April and these winter months won't be any better.

While prices are heading north, wages and salaries are not going up much to compensate because employers know there are not a lot of jobs out there.

Unlike five years ago when, to use economist Cameron Bagrie's expression "even the idiots had jobs", staff are not in a strong position to threaten to leave when everyone knows there's little to go to.

Another issue for retailers is the competition. In the five years since I've been in Newmarket, two major competitor destinations have set up - Sylvia Park and Westfield Albany.

Each of the megamalls take about $1 million out of the Auckland economy every day. Both are very well located.

Sylvia Park is in the fastest growing urban area in Australasia, the southeastern part of the Auckland region. Westfield Albany provides for the first time some critical retail mass for those living north of the harbour bridge.

Newmarket is not alone with competition entering the marketplace during the good economic years. From the 1997 Asian Economic Crisis to 2007 the country's overall annual retail spending nearly doubled from about $38 billion to $66 billion.

Yes, inflation accounts for some of that rise, but nonetheless that is still considerable growth, with shops and centres springing up two a penny.

When the recession hit, there was always going to be a cleanout, particularly of those undercapitalised businesses that jumped in at the top of the market selling a very discretionary product.

In Newmarket we pride ourselves on the fact we haven't lost any really big or old names. What we lost were arguably shops based on a dream, not a solid business case.

More than 400 shops in Newmarket are overall run by very smart operators who invested into their businesses in the good times, knowing bad weather was an inevitability.

Retailers who have invested in their staff, their loyal customers, and kept up with the changing economic climate and cut their cloth are finding it tough but they'll get through this winter.

We're confident things will start to improve in the last quarter of the year with some good tax cuts to compensate for the ETS and GST rises, and hopefully more certainty and some corresponding growth in business confidence.

Doing business in Auckland has good long-term prospects when you consider the huge pending population growth. In the next 21 years, the region is set to grow by more than 570,000 people, taking us to two million people. That is like adding the entire Wellington region and Dunedin City to Auckland by 2031.

While such a fast-growing region presents enormous challenges, it also presents many business opportunities. For example, 320,000 Aucklanders by 2031 will be 65 years or older and a further 40,000 Aucklanders will be over 85.

With the post-war baby-boomers hitting retirement age next year, what an opportunity to set up a business that caters for this older, yet increasingly ambitious and energetic, demographic of Aucklanders.

While we may technically be out of recession, the next three months will nonetheless be particularly tough. The fourth quarter will thankfully see people's pay packets bump up a bit.

However, with retail so dependent on the "feel-good factor" we won't see any real lift-off again until people's overall confidence is substantially boosted and arguably that is still some time off.

* Cameron Brewer is the chief executive of the Newmarket Business Association and a board member of Towns & Cities New Zealand.