News & Thinking
Can e-commerce create opportunities both nationally and internationally for New Zealand?
The Covid crisis has seen many retailers seeking to streamline their business, reduce costs and innovate to attract new customers. Retail NZ’s CEO, Greg Harford takes a closer look at the challenges the sector faces.
There has been much discussion in the media about the effect of the COVID-19 pandemic on New Zealand’s retail sector. The reality of rolling lock-downs is the new normal for many New Zealand retail businesses, who have had to adapt to navigate the new trading environment. In this latest update, Greg Harford, Chief Executive of Retail NZ, talks about the impact of the pandemic on New Zealand retailers, supply chains and skilled talent in New Zealand, and the challenges and benefits of e-commerce platforms. While there is no doubt that COVID-19 has affected retail spend, performance has been stronger than expected in the months of June and July, demonstrating that opportunities still exist.
Though New Zealand’s borders may be shut, e-commerce innovation may open up markets for our retail sector beyond the confines of New Zealand’s brick and mortar stores.
Commentary by Lynn Van, Partner
The pandemic saw many retailers having to juggle a number of difficult challenges: the closing of their business premises, negotiations with landlords over rental payments, deciding on staff strategies (wage subsidy, redundancies etc) together with the challenges of re-enforcing or starting to trade electronically. Has the sector bounced back in Level 1?
Retail performance has been much stronger than expected through June and July, with the majority of retailers recording spending levels ahead of last year. However, there is a significant number of retailers, especially those exposed to the international visitor market, whose businesses are running substantially behind last year. Overall, while spending has been strong in June and July, overall retail spending over the last five months remains nearly 10 per cent down. The average net margin in retail is just 3.6 per cent, so it is very difficult for many retailers to recover from the lockdown.
What are the challenges for your members in moving to an E-commerce platform?
The COVID-19 crisis has led many bricks and mortar retailers to think about establishing an e-commerce store. This was the only way retailers were allowed to trade at Alert Level 3, and helps position businesses for the future. It can be challenging to manage stock levels and inventory when selling online, so retailers need great systems. It can also be challenging for a new e-retailer to get cut-through in the online marketplace. On the plus side, some Retail NZ members have opened e-commerce stores and found that, once we moved to Alert Level 1, the online store actually drove customers to visit the bricks and mortar store as well.
The Covid-crisis highlighted our relationship with our supply chain? Goods that were imported (wholly or in part) were suddenly absent (or stocks were low). Have you seen a move to source more goods from New Zealand?
Generally, logistics chains have held up relatively well during the COVID-19 crisis, although some products have been in short supply. There has been strong consumer interest in buying New Zealand made goods, but there is a limited manufacturing base here for many products. Retailers have been working with their suppliers to manage supply chain issues but, in some cases, they have had to look to source products from new factories and alternative markets. This will likely be an ongoing situation for some time.
With many employees being stuck overseas and visas not being renewed for those in New Zealand, do you think retailers will face difficulties finding suitably qualified employees?
The retail sector has long found it difficult to get the skilled talent it needs to operate, and these challenges are likely to remain, notwithstanding the closure of the borders. It’s important that the Government acts to support both retailers, and those temporary workers already in New Zealand, by being flexible about renewing or extending visas. There’s also a number of people holding valid work visas for New Zealand who are unable to return to their jobs in the New Zealand retail sector, and we would like to see provision made for them to return.
What in your view represents the greatest opportunity and threat for your industry in the next 12 months?
Although the last couple of months have been relatively positive for retailers, there are significant clouds on the horizon. It is likely that the end of the Wage Subsidy from next month will mean many households will see their incomes go down. This will impact discretionary spending, and likely lead to reduced profitability and increased pressure on retailers. It’s going to be hard for many retailers to navigate through a recessionary environment, but the opportunity is there for retailers to review and streamline their businesses, reduce costs, and innovate to attract customers. The increased importance of e-commerce also creates opportunities – because it broaden’s a retailer’s market from being a town in New Zealand to potentially the whole world.
Disclaimer: The material contained in this document is provided only as an information source, and is correct at the time of writing. The material is a generalised summary of the key issues and is not intended as a substitute for specific professional advice and should not be relied on for such a purpose. Independent professional advice should be obtained before relying on any aspect of this material and we would be happy to assist in this regard.