Strained supply chains and increasing wage costs are starting to pressure inflation, warns the head of Retail NZ, who says that apparently encouraging improvements in retail spending across the nation in March hide a less rosy picture.
Average retail spending per outlet among Retail NZ members soared 29.8 per cent in March compared to last year, however the results were uneven across the industry.
“While this is positive, it is really a reflection of just how difficult trading conditions were in March last year, as the economy slowed and we went into Level 4 lockdown,” said Retail NZ CEO Greg Harford.
And despite spending being up for the first quarter of this year, not all retailers are seeing the benefits.
“Forty-two per cent of retailers did not hit their sales targets for the last quarter, and more than two-thirds of Auckland retailers failed to perform,” said Harford. “This was attributable to Auckland yo-yoing in and out of a Level 3 lockdown in February and March this year.
“There are significant inflationary pressures building, as the cost of procurement and freight increase, and the cost of employing staff goes up. Around two-thirds of Retail NZ members expect to see prices increase over the next quarter. Retailers operate on very thin margins – the average net margin across the sector is just 3.9 per cent – so when you have big cost increases, such as we have seen with freight and wage inflation, retailers need to be able to pass these on.”
Harford added that two in three retailers expect the minimum wage increases will have an impact on their businesses.
“The increase in the base minimum wage affects all wages in retail, as employers strive to maintain relativities within their businesses, but there are other consequences beyond cost. Thirty-seven per cent of retailers say they will now have less ability to reward performance, while a third will be looking to reduce hours or the total number of people employed over time.
“In a market where many small business owners struggle to pay themselves the equivalent of the Minimum Wage, they need to take steps to manage cost increases.”
