2004 Reflections and Projections

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Reflections and projections

John Albertson, CEO of the New Zealand Retailers Association (NZRA), looks back at year 2004 and at what lies ahead for New Zealand retailers.

The past year

The calendar year 2004 has been yet another satisfactory year for the retail industry in New Zealand. Sales grew by 7.4% in actual dollar terms in the September year and retail spending in both urban and rural local Government regions remains reasonably buoyant.

However, there remains an intense level of competition amongst the major members of the industry and some major stores reported lower levels of profitability as they struggled to maintain realistic trading margins during 2004.

Government matters

The retail sector, as with most sectoral groups, is faced with a plethora of Government issues that affect the viability of the industry and the NZRA currently has about 40 issues under consideration. Some of these are:

a)  Industrial issues

Retailers were particularly affected by the changes to the Holidays Act in 2004 and industry members found recent changes to the Employment Relations Act both confusing and unhelpful.

The NZRA estimates additional costs arising from penal rates, and new provisions for sick/bereavement leave in the revised Holidays Act, to be in the vicinity of $122m or 3.4% of the industry's payroll.

b)  Packaging Accord

This is a major environmental initiative that will affect the industry over the next five years arising from commitments made by major industry members who signed up to the brand owner/retailers sector plan implemented as a part of the revised Packaging Accord agreed to between the Government and the Packaging Council of New Zealand in August 2004. The sector plan sets out a commitment to reduce the use of plastic bags by 20% in New Zealand over the next five years.

However, the industry's commitments are much wider than that and relate to the development of a New Zealand standard for plastic shopping bags, to developing alternative multi-use shopping bags for sale in store, and providing customer recycling facilities for checkout bags. 

c)  Proposed Free Trade Agreements (FTAs) with China and the Association of South East Asian Nations (ASEAN)

The FTA negotiations with China and the ASEAN countries launched at the end of 2004 are the most important international trading issues to affect the retail industry since the Closer Economic Relationship (CER) Agreement was signed with Australia in the early 1980s.

Over 50% of the range of consumer goods sold by major general merchandise stores is imported from China, hence the issues associated with trade liberalisation are of crucial importance to the retail industry in New Zealand.

However, other issues associated with intellectual property, branding and standards are equally important to ensure that quality expectations are maintained throughout merchandise sold within New Zealand.

The year ahead

All things being equal, the NZRA believes 2005 will bring results similar to the year 2004 with sales expected to increase by about five per cent over the year - unless major economic pressures compound a retrenchment within the New Zealand economy.

To date, interest rate rises do not seem to have led to any significant dip in new housing construction, nor in the sale of big-ticket items. However, 2005 is an election year and, consequently, a number of issues will likely emerge that may affect the industry. These include:

a)  Coinage review

The NZRA intends to present further submissions early in the year on the proposal to remove the five cent coin from circulation.  Our view is that the proposal is inflationary in that most retailers would simply raise prices to the nearest dollar to ensure that their margins on particular lines of merchandise are maintained.

b)  Taxation

Retailers currently pay up to nine different forms of central Government tax, as well as local body imposts. Consequently, the NZRA believes there is scope to simplify the tax system and reduce compliance costs. It considers the corporate tax rate must be addressed to encourage investment and be set at a level to foster business development - this will be a major platform of its submissions to political parties in the lead up to the 2005 election.

c)  Industrial issues

Similarly, the NZRA will make representations in the lead up to the election to roll back the worst features of the 2003/4 changes to the Holidays Act and Employment Relations Act, this in an attempt to restore balance and equity to both parties in the employment relationship.

d)  Packaging Accord

The NZRA will work with the retail industry to seek a greater buy-in for members of the industry to the brand owner/retail sector plan to mitigate any suggestion of a Government regulation on packaging issues.

e)  Free Trade Agreements

In the early part of 2005, the NZRA proposes to host a major workshop to specifically discuss the likely practical implications of the proposed FTAs with China and ASEAN for the retail industry.

The Association will also attend the 2005 Asian Retailers Convention and Exhibition that will be held in Beijing in September.

f)  Food Safety review

The NZRA will convene a forum early in 2005 with smaller retailers to discuss the review of food safety legislation being undertaken by the New Zealand Food Safety Authority. Whilst major operators are not likely to have difficulty in meeting the new standards, it is quite possible smaller operators will incur higher compliance costs and, accordingly, the Association will be developing submissions to ensure the retail industry is given reasonable time to adjust to the new regulatory environment.

g)  Shop theft

Shop theft, estimated to cost the industry between $1-2m per day in lost sales, continues to be a major problem for the industry. The Association will continue to address the problem through the consultancy service put in place for smaller traders in 2004 and look at possible educational initiatives through primary or intermediate schools.

Conclusion

Retailing makes a significant contribution to the New Zealand economy. Sales now exceed $54 billion per annum and the industry employs in excess of 17% of the workforce.

The Association believes 2005 will see a result similar to 2004 and, provided the buoyancy of the economy is maintained and there is no U-turn in the Government's overall economic direction, the NZRA believes 2005 will be another good year for the industry in New Zealand.