Changes in consumer behaviours, together with improvements in payment system security and better access to the internet nationwide, have supported continued growth for online revenue. (In the year to August 2020, 11.4 per cent of all retail spending was done online, compared to 8.8 per cent in the same period in 2019.)
In this article, we seek to explore how retailers in New Zealand responded to the Covid disruption and the challenges and opportunities that lie ahead for the sector.
The Covid outbreak and subsequent lockdowns resulted in a steep sales decline in April in nearly all retail sub-sectors. Retail electronic card transactions declined 83.1 per cent that month compared to the year before, with significant decreases in food and drink services (-94.9 per cent), recreation goods (-80.2 per cent) and department store sales (-68.3 per cent).
Although retail spending has experienced a remarkable recovery since June, many retailers have not recovered the lost sales from this period. To manage the impact on their businesses, retailers have responded by drawing on government wage subsidies and looking for cost-reduction opportunities such as forced annual leave and salary sacrifices. Companies also used the post-lockdown period to review the way they operate by implementing restructuring plans or evaluating their store footprint.
During the lockdown, many retailers sought to negotiate rent relief from landlords or deferred their obligations to preserve cash. However, negotiations with landlords came with mixed success, with outcomes dependent on the terms of a lease, a tenant’s relationship with their landlord, and their relative bargaining power.
As the government relaxed trading rules and lockdown levels, retailers had to shift their operating models to cope with new trading rules whereby most retailers could only operate contactless delivery or pick-up. This forced retailers to accelerate their online presence and to consider a multi-channel retail strategy. For those who had invested in their online model and digital presence, this was an opportunity to connect with customers. However, it also exposed issues with infrastructure and fulfilment models and represented a missed opportunity for some retailers.
Challenges and opportunities
Coming out of lockdown, retailers have experienced an increase in consumer spending from the year before (June: 7.7 per cent, July: 9.8 per cent, August: -8.2 per cent (due to a second lockdown), September: 6.4 per cent). This growth has been partly driven by post-lockdown catch-up spend and increased consumer appetite for retail, especially in an environment of low-interest rates and limited options for discretionary spend due to border restrictions.
This positivity has also created unexpected supply chain pressure, with many retailers facing stock shortages ahead of Black Friday and Christmas. Sourcing products from countries with limited production due to lockdowns (Europe, for example) is one of the significant challenges faced by retailers leading into the holiday period. This, combined with reductions in freight and port capacity and increased freightage costs, has resulted in additional production costs for retailers and potentially lower discounts offered to end customers.
There remains a significant level of uncertainty going into 2021. The outlook for the sector is likely to be influenced by a few things: consumer confidence and the impact of fiscal support tailing off; an expected surge in unemployment; the ability to maintain levels of in-store and online demand; and the possibility of future lockdowns.
As with all disruption, there are challenges and opportunities. A retailers’ ability to quickly adapt to the changes could mean the difference between success and failure. Trends that are critical for a retailers’ success include strong online presence, improvement in customer experience through an omnichannel retail strategy, and robust infrastructure to ensure speed of delivery and customer satisfaction.
This article was originally published in the 2021 Australian Retail Outlook sponsored by KPMG. To download the report, click here.