Retailers Struggling as Consumer Spending Declines and Costs Rise

Retailers are barely holding onto their storefronts as customers reduce spending and the costs of wages, insurance, and freight increase.

According to Stats NZ, electronic card spending dropped by 0.6 percent in June, with sales values declining by 4.9 percent compared to the previous year.

Retail NZ is currently surveying its members on trading conditions, revealing that over 70 percent of respondents failed to meet sales targets for the second quarter.

Carolyn Young, Chief Executive of Retail NZ, indicated that many retailers are struggling to cover their costs.

“We are definitely seeing businesses close. Retailers are adapting to the challenging environment. Large retailers are reconsidering the profitability of renewing their leases, while smaller retailers are evaluating whether to replace staff members who resign and exploring other cost-saving measures,” Young said. “They may also consider diversifying their stock to survive.”

Young noted that while the Reserve Bank’s recent signals on potential rate cuts were encouraging, the benefits would take time to materialize.

“We know there’s a lag. Even if interest rates are cut, the impact won’t be immediate,” she said.

The upcoming government tax cuts, expected at the end of July, along with potential interest rate changes, might help mitigate business losses, according to Young.

ASB Senior Economist Kim Mundy highlighted that high interest rates, rising household costs, and job insecurity are deterring consumer spending. However, she expressed skepticism about the potential impact of tax cuts on consumer behavior.

“Consumer confidence is very low, and uncertainty is high. We wouldn’t expect consumers to spend heavily rather than save for future needs,” Mundy said. “This suggests the economy will continue its current trajectory, allowing the Reserve Bank to eventually reduce pressure on the economy.”

Mundy emphasized that consumers are reacting as the central bank intended, by reducing spending to help rebalance economic demand and supply. She also mentioned that easing pricing pressures might pave the way for OCR cuts later in the year