Christmas will be 'last shot at survival' for SMEs: research

The all-important Christmas trading period were determine the fate for many small firms. Photo / 123RF

Research shows the Christmas trading period this year is more critical than ever for retailers and small businesses - and may mean the difference between survival and going under.

Forty-three per cent of small businesses within the hospitality sector say they are concerned their business will fail next year if the Christmas trading period does not meet their forecasts. This figure is 20 per cent for those in retail.

These findings come from American Express' Small Business Recovery research, which found that the lead-up to Christmas will be critical for 30 per cent of New Zealand small businesses, and 71 per cent of those in hospitality.

Rob Bourne, NZ country manager of American Express, said the findings suggest that the Christmas trading period will be "make or break" for many Kiwi small businesses.

"The pressure is particularly high for those who have been forced to lay off staff or who are trying to make up for significant losses from earlier in the year. Now, more than ever, if we want to see these small retailers survive, we all need to show our support by spending with them as often as we can," Bourne told the Herald.

Fifty-eight per cent of the 500 small businesses surveyed for the research said they were counting on shoppers to spend with them in the lead up to Christmas as they recover from the impacts of the Covid-19 pandemic.

Of those surveyed, 74 per cent said they expected the impact of the crisis to roll on beyond 2020, with 19 per cent expecting a much longer-lasting impact.

While around half of SMEs say their customers have played a critical role in supporting them during the pandemic, only one in five feel that their wider local community has rallied around them.

Bourne said these findings were concerning, and consumers needed to do more to support struggling businesses. "This suggests that locals need to shop beyond their regular stores and rally together to do more for small businesses."

Aucklander Matt Nicholls, co-owner of New York-inspired cocktail bar Bedford Soda & Liquor and Commercial Bay venues Public and Reign & Pour, said the past seven months of disruption caused by Covid-19 and lockdowns had put significant pressure on the hospitality sector.

He said the all-important Christmas trading period was much more important this year and would be centred around recouping lost revenue rather than traditionally bumper profits.

Nicholls' Commercial Bay venues in downtown Auckland have felt the brunt of fewer people working in the CBD and consumers becoming cautious with spending after the second lockdown. Revenues are down about 25 per cent on typical trading levels.

"To have a year where you've got two months, and, in some instances, more of no trade whatsoever, not many businesses - particularly small businesses - just can't survive. Many haven't already, and some are hanging out just to be able to see if the uplift in sales we get over Christmas period is enough to get them through," Nicholls told the Herald.

"In hospitality, this Christmas out of any other is the most important.

"Everybody's bank accounts are pretty low, and we've got to do our best to generate as much turnover as we can."

Trade in November and December can make up more than 35 per cent of annual earnings, Nicholls said. It was hard to know what the long-term impact of Covid would be, he said, but he expected that the real effects of the recessionary environment would not be realised until the end of next year.

"We came out of the first lockdown, and there was a real sense of pride that we had done it and got through it, coming out of the second one, there hasn't been that spike in spending or celebration of us getting back into level 1.

"People are now more conservative at the moment, and there is a real concern that if we go into another lockdown there will be a lot of hospitality businesses that just won't be able to sustain it. If we had a lockdown in December - it would decimate the hospitality industry."

Analysts on Xmas retailing

A Forsyth Barr research report says spending in the eight-week run-up to Christmas "looks to be better than previously anticipated".

"The retail sector is poised to positively surprise into Christmas, in our opinion. The housing market remains buoyant and is unlikely to reverse near-term with tight inventory, low borrowing costs, and returning Kiwis re-entering the market. Interest rates at record lows also reduce the incentive to save, supportive of continued retail activity, particularly in the homeware segment," Guy Hooper said in the report.

"The important Christmas trading period is approaching, and whilst there remains a high level of uncertainty, the health of the consumer appears better than previously expected. November and December represent 20 per cent of annual core retail sales and a significant portion of company earnings.

"Our view of the near-term outlook has continued to improve following the gloom of lockdowns, as consumer activity proved to be resilient and economic indicators remained supportive. We think investors are best placed investing in retail categories exposed to favourable purchasing trends (e.g. homeware and outdoor gear), and companies backed by well-established brands with an attractive online offering."

Despite the positivity, Hooper warned that the outlook of retail could sour heading into 2021 as "government support tapers off, and the economic realities become clearer".