Small businesses are feeling the brunt of consumers watching their wallets. Photo / 123RF
Small businesses are feeling the brunt of consumers watching their wallets. Photo / 123RF
Kiwi small businesses recorded the largest monthly decline in sales in June since the first Covid lockdown, according to new data from Xero.
Xero’s Small Business Insights data covering the June quarter showed sales fell 8.3% year on year, the largest monthly fall since May 2020.
This followed adecline of 2.4% in May year on year. Sales for the quarter fell 1.5% when compared with the same period a year ago.
Paul Churchman, Xero NZ’s head of sales, said the declining sales growth was a concerning indication that small businesses were facing pressure from the turbulent economy.
“After what looked to be a more positive start to 2024, this sharp decline in sales suggests small businesses are not faring so well.
“The latest inflation figure from Statistics New Zealand was 3.3% for the June quarter. Adjusting the nominal XSBI data to real data, this indicates small business sales are even weaker, down 4.8% in the June quarter.”
All industries experienced a decline in sales in June with hospitality (-10%), construction (-10%) and retail trade (-11.4%) the hardest hit.
The same three industries also recorded the largest quarterly declines in sales year on year, led by hospitality (-3.7%), construction (-3.4%) and retail (-3.3%).
“These three industries are all particularly sensitive to the impact of high interest rates, as consumers tighten their purse strings, paring back their non-essential spending and delaying big purchases,” Churchman said.
Only real estate (+0.9%) and other services (+0.1%) had positive growth for the quarter.
Recent card spending data highlighted the extent to which consumers were pulling back on their spending.
Spending on retail and core retail (excluding motor vehicles and fuel) fell for the fifth consecutive month in June, and was down 4.9% and 3.8% respectively on an annual basis, according to Stats NZ.
“While sales are declining, businesses are facing increased rents, wage pressures, rate costs, supplier issues and insurance increases. And there’s a number of those things they can’t control,” she said.
“That will be why you’re seeing some businesses making decisions about where their business is located, and are those individual stores profitable, larger businesses deciding to shut some stores and some smaller businesses just deciding to close altogether.”
Kiwi small businesses recorded the largest monthly decline in sales in June since May 2020, when the country was in its first Covid lockdown. Photo / Dean Purcell
Wages, jobs grow
Small business wages grew 3.6% over the June quarter when compared with the previous year, according to Xero.
Construction (+4.1%) and other services (+3.8%) offered wages above the national average. The smallest wage rises were in agriculture (+2.9%).
“While labour market tightness has eased slightly in the past year, this acceleration of wage growth suggests small businesses remain eager, and are currently able, to pay larger wages to attract talent,” Churchman said.
“This likely comes back to small businesses wanting to be primed for when conditions improve, with many having been impacted by the post-pandemic skill shortages.”
Jobs rose 6.7% over the June quarter when compared with the same period last year, slightly below the 7.0% rise in the March quarter.
Job growth has been gradually slowing over the past 18 months after peaking at 9% year on year in the March 2023 quarter. It remains above the pre-pandemic average of 3% year on year.
“This steady jobs growth reflects how small business owners remain hopeful about the future, ensuring the small business sector is prepared and fully resourced for when economic conditions improve,” Churchman said.
“We’ve also seen a number of redundancies across big firms and the public sector, potentially providing Kiwis with an opportunity to slot into new small business roles.”
But Churchman said wage growth, paired with continued jobs growth, raised the question of how long small businesses would be able to sustain this trend if sales did not pick up.
Business sales surge
Despite the tough economic conditions, data last week from brokerage firm ABC Business Sales showed the demand for small business ownership in New Zealand was experiencing unprecedented growth.
Completed sales and transactions of small businesses over the last quarter (April to June) were 37% higher than in the same period last year.
In total, 112business sales took place over the three months, compared with 82 the previous year.
“We’re seeing Kiwis flocking to ‘buy themselves a job’. This includes people transitioning from redundancy to business ownership, or moving from unemployment into their own business ventures,” ABC Business Sales managing director Chris Small said.
Cameron Smith is an Auckland-based journalist with the Herald business team. He joined the Herald in 2015 and has covered business and sports. He reports on topics including retail, small business, the workplace and macroeconomics.
