2005 Reflections and Projections
MEDIA RELEASE
For immediate release
28 December 2005
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Reflections and Projections
The New Zealand Retailers Association provides a review of the sector's performance during 2005 and considers the key challenges expected to stem from the influence of both consumer and Government decisions in 2006.
The Past Year
Performance
To the year ended October 2005, retail sales increased by 6.7% in actual dollars terms compared to growth of 7.5% for the same period in 2004. The 2005 growth figures were artificially inflated by fuel price increases, a peak in tourism spurred by the mid-year Lions Tour, and one-off expenditure driven by increased borrowing against the uplift in house values and equity.
However, removing these factors we see evidence that retail confidence and consumer demand is flattening as a direct result of increased interest rates and uncertainty about the long term vibrancy of the housing market.
Government Issues
The retail sector continued to be constantly faced with a plethora of Government issues that impact on the viability of the industry, and this year the Association had at any one time around 50 issues under consideration. In summary, key issues have included:
Industrial
The Association expressed major concerns about the Governments plans to increase the adult minimum wage from $9.50 to $12.00/hr over the next three years. While we accepted that a modest rise in line with general wage movements would be warranted, a 21% increase is unsustainable for the retail sector, and ultimately for the economy.
While Government decisions are subject to the economic conditions of the country, we believe an increase of this magnitude will add markedly to retailer's costs structures and will, if implemented in full, end up costing the industry $760m.
Environmental
Expected to continue to be a major feature affecting the retail sector during the coming three years, environmental issues of note have included product stewardship (requiring those involved in the supply chain from manufacture to consumer to undertake responsibility for the process and costs of recycling merchandise they produce, sell or use), litter minimisation and direct support of the Packaging Accord.
Other
The FTA negotiations with China and the ASEAN countries launched towards the end of 2004 remain the most important international trading issues likely to affect the retail industry since the Closer Economic Relationship (CER) Agreement signed with Australia in the early 1980's. Issues associated with negotiations remain of crucial importance to the industry as over 50% of the range of products sold by the general merchandise chain stores in New Zealand are imported from China.
The Year Ahead
Performance
In line with wider economic predictions that are strongly supported by consumer and business confidence survey's, we anticipate belts to be further tightened and to see a slowing in the level of growth in the retail sector in 2006 to 3-4%. The lower rate of growth will be the result of higher interest rates and a cooling of the growth in the housing market.
Whilst some increased purchasing power will accrue to consumers through the tax rebates arising from the Working for Family's package announced in the 2005 Budget and the modest increases in superannuate entitlements in the new Government's programme, we consider the trend of a flatter market evident in the latter part of 2005 will continue throughout 2006.
Major issues of focus for the industry and Association during 2006 include:
The Association will work with the Reserve Bank on identifying and addressing logistical implications arising from the removal of the 5 cent coin from circulation and the replacement of the current 10, 20 and 50 cent coins in July 2006.
Continuing work with retailers to achieve a greater buy-in and contribution to the 2004 Packaging Accord aim of reducing environmental impacts of packaging materials and products through waste minimisation.
Continue to work with other sectoral groups within the Grocery sector and Government Agencies to put in place strategies to minimise the detrimental effects of any Avian Bird Flu Pandemic in New Zealand.
Four development projects on Shop theft/crime, Immigration, Education and Market Intelligence have been initiated by the Association to address the issues considered to impinge upon the future of the industry and have wider reaching consequences for the Nation.
Conclusion
The retail sector continues to make a significant contribution to the New Zealand economy. Sales now exceed $57b per annum and the industry employs in excess of 17% of the workforce.
However, with the level of sales flattening, the Association expects a lower level of growth in 2006 to that experienced in the past few years. We have voiced our concern to the Government that this slow down, if left un-corrected, will ultimately come at a cost to the sector and subsequently have detrimental impact on the Country's social and economic development.
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