According to David Norman, industry economist from Westpac, retail is arguably one of the most challenged industries in New Zealand as a result of online competition, a squeeze on margins, and the risk of low-cost bulk competitors amid many other factors.Recent performance of the sector sub-sectors within retail have experienced mixed success since the 2008 recession and the growth in online trade.“We expect to see retail spending slow over the next year as GDP growth moderates, unemployment rises, and wage inflation remains low,” he says.“Population growth is currently an important positive, but will weaken from late next year. Longer term, we expect a more substantial dip in consumption spending with less population growth, a weaker exchange rate and a slowing housing market. Specific trends and risks will vary significantly by sub-sector.”Norman says ongoing competition from offshore online retail will continue to hurt retailers selling books, electronics, cheaper undifferentiated or generic clothing, hardware and homeware the most.It will have less of an effect though on businesses selling differentiated independent brands, bulk or fresh/live products.Government action to collect tax on online services is not expected to extend to goods, which means this problem is not going away soon.“Larger retailers in most sub-sectors are expected to expand their footprint, either through larger format stores that allow customers to get everything they need under one roof, or through greater geographic reach,” points out Norman.“Smaller retailers will need to offer something no one else does to remain competitive.”Discounting has increased across homeware and electronics, hardware and garden, and recreation retail.“We expect this to continue, with evidence suggesting the trend is growing in food and grocery retail as well. The everyday discounts at full-price stores will make survival a challenge for outlet stores,” says Norman. “Retailers are already cutting the cost to serve. Examples include getting the customer to do more of the work such as self-service checkouts, electronic labelling, transferring risk to the supplier through sale or return agreements, and reducing their supplier lists.“Differentiated products that consumers can’t buy from an offshore or local online competitor will be most viable.“In a lowest-price-wins environment, retailers will need to wow on service and product knowledge to create loyalty.“Factors over which retailers have little control will create winners and losers. Examples include how recent house price gains are used; the trend for retirees to cash-up and move out of Auckland; the DIY-er generation created by cooking, renovation and gardening TV shows; and fears over terrorism that may see consumers buy cars or boats instead of travelling overseas.”Norman emphasises that the macro picture shows that change is afoot.Recent times have seen real retail sales growth reach rates last seen before the 2008 recession.“However, we do not expect this to continue unabated. We forecast the NZ economy to slow in 2016, with dairy prices well down on historical highs, the Canterbury rebuild having peaked, El Niño affecting meat and pipfruit production on the eastern seaboard, and the spending confidence associated with rising house prices beginning to weaken. These changes will be accompanied by higher unemployment, weak wage growth, persistently low inflation, and a weaker NZ dollar,” explains Norman.“As population growth weakens, we expect to see a further fall in consumption demand, including retail. We anticipate that private consumption, which includes a large retail component, will slow modestly over 2016, before dipping more markedly toward the end of 2017.”And with some insights as to what the year ahead holds, the team at Inside Retail NZ would like to wish our readers all the best for the festive season.