Why cautious optimism isn't enough for NZ's retail sector

New Zealand's retail sector is currently in a state of cautious optimism.

Slowly, very slowly, sales figures are beginning to improve. The total value of retail sales rose 0.6 per cent between the June and September 2018 quarters (seasonally adjusted).

However, this state of cautious optimism among retailers - who will now be seeing the effects of the always-busy Christmas period - should by no means be reason to rest on their laurels. Retailers need to understand the many trends shaping the sector and how they are causing disruption and increased competition. Trying to keep afloat purely off the back of slowly improving sales figures simply isn't enough.

So, what trends do New Zealand's retailers need to know about?

Retail businesses will be feeling cautiously optimistic moving into the Christmas period, but they still need to understand the industry disruption taking place.

1) Retail technology and e-commerce

Technology has been at the heart of disruption in every industry, and retail is no different. E-commerce is the most prominent case of technological disruption in the sector. Increasingly, consumers are turning to the internet for its ease, convenience and greater choice.

While New Zealand has in the past been relatively immune to the effects of e-commerce (or at least more immune than other countries), the arrival of Amazon on Australia's shores has changed that. Kiwis are now spending an estimated $4.2 billion a year online, according to a report released by BNZ, with a 12 per cent rise in purchases from international merchants.

Retailers need to find a way to differentiate their in-store experience, but some will also consider setting up an online sales channel. But all too often, businesses aren't committing to e-commerce strongly enough or on a systematic basis. A poor online shopping experience can easily turn a customer off a brand altogether, while increasing a business's internet presence also heightens the risk of a cybersecurity breach. Finding a method of navigating these two extremes will be essential moving forward.

Fortunately, retail technology also presents significant opportunities:

  • Beacon technology uses Bluetooth to connect with customers' mobile devices, giving them personalised adverts, recommendations and discounts.
  • Alternative payment options such as WePay or Alipay allows customers to avoid queues.
  • VR and AR allows customers to try products before they buy them.
  • Predictive data analytics allows you to enhance your inventory and stock management, as well as optimise store layout.

2) Consumer demands are changing

Online shopping and other retail technologies mean consumers now have more choice than ever before. They need a reason to shop in-store as opposed to online, and that means providing them with an experience - one they can't get on the internet. Retailers can use technology to deliver this experience, or empower their staff to provide it - but whatever they decide, they need to do it quickly.

3) Stores are trying to cut costs, some at all costs...

Retail businesses all over the world are trying to cut costs in order to balance out low sales figures. But this is having a negative effect on the customer experience. "I was recently in the US and stores over there are trying to drive profitability by carrying less range and therefore less cost," says Tristan Will, Business Advisory Partner at BDO New Zealand. "However, this is frustrating consumers because the stores no longer have what they want, so they are making a choice to shop elsewhere. Instead, decisions need to be made with what your customers desire in mind."

In New Zealand, the problem is likely to become more pronounced with the introduction of higher minimum wage in April 2019, 2020 and 2021, at which point it will reach $20 an hour. If retailers want to create a unique in-store experience, they need to invest sufficiently in staff training and culture. This means offering minimum wage may not always be suitable to get the right people. However, with wages increasing, many retailers are left without a choice. Being able to manage cash flow and invest where necessary is therefore vital, as is focusing on staff productivity and ensuring retailers have employees in place when they are needed.

4) Seeking business advice with BDO's specialist retail team

The tide is slowly turning - New Zealand's retail industry is definitely beginning to improve. However, the disruption is still very real, and businesses operating in the space need to find a way to navigate the trends and establish a point of difference for themselves over the increased competition in order to really thrive.

Fortunately, BDO New Zealand's specialist retail team can help. We offer a broad range of strategic advisory, tax and traditional accounting services for retailers all over the country. Reach out today for more information.