The Mānawa Bay shopping centre and its many hectares of floor space are likely to see increased traffic over Labour weekend and the holiday season build-up. Photo / Michael Craig
The Mānawa Bay shopping centre and its many hectares of floor space are likely to see increased traffic over Labour weekend and the holiday season build-up. Photo / Michael Craig
Editorial
EDITORIAL
New Zealand retailers are feeling more confident than they were last quarter, according to a survey by Retail NZ.
The third quarter (Q3) Retail Radar survey of Retail NZ members points to an improvement in confidence, with 65% confident or very confident that their businesswill survive over the next 12 months, compared with just 58% in the June quarter and 57% in last year’s September quarter.
Despite the upwards trend, many retail businesses across the country are still struggling to meet sales targets, given the high costs of living and doing business. In fact, according to Retail NZ chief executive Carolyn Young, 43% still did not expect to meet their sales targets over the fourth quarter, ending in December.
The recent drop in inflation figures and cuts to the Official Cash Rate (OCR) are indeed cause for some optimism but retailers will soon find out if that feeling is misplaced.
As Young pointed out, “the fourth quarter is critical for retailers, with key sales periods including the Labour weekend sales, Black Friday sales and Christmas promotions”.
“Many retailers rely heavily on strong sales during this period to ensure they have a buffer for quieter months. So it’s encouraging to see that a significant number of retailers are expecting buoyant Christmas sales,” she added.
If the financial markets are anything to go by – and they usually are – retailers may be right to feel positive about the months ahead.
With another OCR announcement looming next month, financial markets are pricing in a 20% chance of a 75-basis-point cut.
BNZ’s head of research Stephen Toplis told RNZ that while this “jumbo” cut is not out of the realms of possibility, a 50-basis-point cut is far more likely.
“The last time they moved, was actually 75 basis points upward when the CPI [Consumers Price Index] surprised them by a massive 0.8%. The recent CPI surprise was 0.1%, which really isn’t a surprise at all,” he said.
BNZ head of research Stephen Toplis. Photo / Catherine Cattanach
According to Toplis, there isn’t anything disastrous happening to the economy to justify such a large cut and it could run the risk of pushing inflation back up again.
The economist said interest rates need to come down below 4% to stimulate the economy, but also said they can’t drop too quickly because consumers have borrowed on short terms and will get the financial perks of lower rates much sooner.
“Most people are rolling over six months [fixed] mortgage interest rates so they’re going to get their bang for their buck quite quickly. We all talked a lot about the tax cuts and what that was going to deliver, that was sort of $20 a week for the average punter,” Toplis told RNZ.
“But these mortgage rate cuts for some people are delivering hundreds of dollars a week. Now, that will change [spending] behaviours, but we just need to be conscious that we don’t actually just flood the economy with money again and not see what impact it’s having.”
The current OCR is 4.75%, the lowest it has been in 18 months. This week, Rabobank forecast an OCR of 3.25% mid-next year and said it expects the Reserve Bank to move quickly to shift the OCR to a “neutral” position, which it estimates will be in the vicinity of 3.25%.
“Consequently we expect another 50-basis-point cut in November to take the OCR to 4.25%,” the bank said in an advisory.
Another OCR cut next month will likely provide an extra boost of confidence – but unemployment figures, also to be released in November, could cause some concern. As Herald Business editor-at-large Liam Dann told The Front Page podcast earlier this month, “we have to remember the Reserve Bank was warning it was doing this. It’s comfortable doing this because inflation is falling and they know the economy is in a slow patch. They can see business stress rising. They can see unemployment rising and they see that continuing well into next year. So, if you’re worried about losing your job, you’re probably less likely to spend.”
There are a lot of numbers in the mix but going into the Labour weekend sales with rising confidence is not a bad place to be. We’ve got Black Friday, Cyber Monday and the holiday shopping madness to come. The proof, as always, will be in the (Christmas) pudding.
