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1. An overview of the New Zealand retail market Dynamic Retail An overview of the New Zealand retail market Dynamic Retail 2018
1.
An overview of the New Zealand retail market
Dynamic RetailAn overview of the New Zealand retail market
Dynamic Retail 2018
RETAIL OVERVIEW 2018: a Retail NZ research reportRetail is a significant part of the economy, impacting on almost every New Zealander, every day. It’s a market that is highly dynamic; constantly changing to meet consumer demand and competitive pressures. It is also highly diverse, covering everything from the family grocer, to high-end fashion, cars, fuel, and building supplies. Retail NZ's job is to help the retail sector deliver success, and this report takes a high-level view of the sector’s performance leading up to 2018. It brings together a range of statistical sources to understand what retailing in New Zealand means today.
It is intended to help to retailers understand the New Zealand market and position their business within it. It is also intended to help commentators, decision-makers and influencers understand the sector and what defines it in 2018.
It is heartening to see that, despite the challenges and headwinds that have faced the retail sector since the turn of the century, overall it is performing solidly. In fact, the New Zealand retail sector has been out performing every Australian state and territory except New South Wales over time. I hope that our members and others with an interest in the retail sector find this report useful, and that it helps businesses position themselves for future success.
Scott FisherChief Executive - Retail NZ
CONTENTSExecutive summaryThe retail industry
Retail sector performance Retail spending Average annual retail spend per personInternational comparisonsOnline retailing
How is the retail market comprised? Retail outlets and jobsThe two faces of retail in New ZealandRetail businesses are relatively short-livedSales per employee vary widely Net margins are low across the sector
What will retail look like in 10 years? Predictions for 2030
45
67
1011
1214151617
19
4.
EXECUTIVE SUMMARYOverall, news for the retail sector is relatively positive. Retail spending has grown steadily since the Global Financial Crisis in 2009 and is currently $92.3 billion. Compared to other economies our retail growth has been relatively stable and positive. However, when we take a closer look the picture isn’t always rosy. Some of the more discretionary categories have come under pressure which can be expected at times when consumers have less money in their pockets. More concerning is the threat of offshore online merchants for categories most exposed. Around eight per cent of our retail spend is now online and this is likely to continue to grow.
Retail is a large employer, accounting for almost 10 per cent of New Zealand’s workforce. The sector is dominated by small to medium sized enterprises. 89 per cent currently employ fewer than 10 people. However, the largest retail businesses employ almost half of the retail work force.
Overtime, the trend is toward fewer stores per capita. Stores are also moving towards larger formats. While these employ large numbers of workers, staffing levels per customer are lower than in the past. However, these stores, service larger number of people. There was a net decrease in the number of retail outlets in 2017 for the first time since 2012.
Retailers are operating in a highly competitive, and now global, market. The average margin for retail businesses was 3.7 per cent in 2017. This competition and high costs for New Zealand based retailers, particularly those with physical stores, will keep pressure on margins.
THE RETAIL INDUSTRY
13,722
35,367retail premises in NZ
retail businesses employ no staff
10%3.7%average profit margin
of all NZ jobs are in retail
89%of retailers employ fewer than 10 people
8%of all retail spending is online
6.
RETAIL SECTOR PERFORMANCE
$20 bn
$40 bn
$60 bn
$80 bn
$100 bn
$120 bn
RETAIL SPEND*$140 bn
$0
RETAIL SPENDINGRetail sales have grown at around five per cent year-on-year over the past five years in actual terms. This was around the time the market stabilised after the Global Financial Crisis which saw a major slump for retailers in 2009. Spending is also significantly higher than in the year 2000 in inflation adjusted terms which indicates that our dollar is worth more but also that Kiwis are buying more. We expect this trend to continue.
• Overall retail spending has grown steadily since the Global Financial Crisis.
• By category we see more volatility with discretionary categories and those most exposed to online competitors coming under the most pressure.
• Around eight per cent of our retail spend is now online and this is likely to continue to grow.
• Compared to other economies our retail growth has been relatively positive.
$58.5 bn
$92.3 bn
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Actual spend
2000 spend adjusted for inflation
* Excludes GST
7.
Supermarket and grocery stores $4,103
Motor vehicle and parts $2,739
Food and beverage services (restaurants, cafes, takeaways, bars)
$2,317
Building supplies, furniture and houseware
$2,174
Department store, clothing, footwear and accessory
$1,781
Fuel $1,658
Pharmaceutical, store and non-store, and commission based retailing
$1,480
Electrical, electronic goods and recreational goods
$1,195
Accommodation $836
Specialised food and liquor $670
RETAIL SPEND $ 18,953
GST (15%) $2,843
TOTAL $21,796
AVERAGE ANNUAL RETAIL SPEND PER PERSONIn the year to 31 March the average New Zealander spent close to $22,000 with retailers in New Zealand, of which $2,843 was paid to the Government in tax.
The most significant category was supermarket or grocery shopping, the next being motor vehicles and parts.
$5,000
$10,000
$15,000
$20,000
2000 2002 2004
Actual spend per person
2000 spend adjusted for inflation
2006 2008 2010
RETAIL SPEND PER CAPITA*
2012 2014 2016$0
When we look at spend per capita adjusted for inflation we also see significant growth. New Zealand’s population has been growing steadily since 2000, but particularly after the Global Financial Crisis. In 2017 New Zealand had the fastest population growth rate of the OECD countries.
2018
$18,953
$15,159
* Excludes GST
8.
2000 2002 2004
Supermarket and grocery stores
Motor vehicle and parts
Food and beverage services
Hardware, building and garden supplies
Fuel
Department stores
2006 2008 2010
ACTUAL RETAIL SPEND* - SIX BIGGEST CATEGORIES
2012 2014 2016$0
$5 bn
$10 bn
$15 bn
$20 bn
2018
By category we see more volatility with discretionary categories (such as motor vehicles and, hardware and building supplies) taking the major hits when pressure comes on the economy. Categories such as department stores, which are facing strong competition from massive offshore retailers, like Ali Baba and Amazon, have seen slower growth.
* Excludes GST
9.
Comparing total sales in each category between 2000 and today, we see the largest growth by far in the non-store and commission based retailing category. This category includes online only retailers. While this is a comparatively small category, and has seen large fluctuations, looking back over this period the growth is marked. Online sales from businesses that also have a physical presence (for example supermarkets) are included within the relevant category.
150%
173%
181%
TOTAL GROWTH IN ACTUAL RETAIL SALES 2000-2018
Supermarket and grocery stores
Electrical and electronic goods
Accommodation
Food and beverage services
Specialised food (excluding liquor)
Non-store and commission based retailing
Total growth
335%
132%
139%
Total sales have increased by 132% since 2000
105%
106%
119%
121%
Liquor
Clothing, footwear and personal accessory
Furniture, floor coverings, houseware and textile goods
Motor vehicle and parts
Pharmaceutical and other store based retailing
Hardware, building and garden supplies
Fuel
127%
135%
97%
Department stores 94%
Recreational goods 54%
188%
10.
6%
5%
3%
0%
4%
1%
2%
AUSTRALIA VS NEW ZEALAND TOTAL SALES GROWTH 2013-2017
ASIA-PACIFIC TOTAL SALES GROWTH 2013-2017
TAS
VIC
NZ
Sing
apor
e
Aus
tral
ia
New
Zea
land
Mal
aysi
a
Indo
nesi
a
12%
10%
6%
0%
NSW AC
T
SA
QLD W
A
NT
8%
2%
4%
10.
INTERNATIONAL COMPARISONSTaking a small number of other countries for comparison, New Zealand’s year on year growth has been relatively stable and steady over time. Over the past five years, growth averaged five per cent, fluctuating between a high of 7.1 and 3.2 per cent. While we haven’t seen the highs of other Asian countries such as Singapore, Malaysia or Indonesia – we also have not seen the lows.
It is particularly noteworthy that New Zealand’s retail sector has outperformed Australia’s overall, and retail sales have grown faster in New Zealand than in all Australian states and territories except New South Wales. This reflects the relative strength of New Zealand's 'rock star’ economy since the Global Financial Crisis.
Online shopping in New Zealand is on a par with
Australia and the USA
1 [Source BNZ Marketview]2 [Source NZ Post eCommerce report]
3 [Source BNZ Marketview]4 [Source NZ Post eCommerce report]
11.
ONLINE SALES DOMESTIC VS. OFFSHORE
Domestic transactions (55%)
International transactions (45%)
ONLINE RETAILINGA significant portion of the retail market in 2018 is online at around eight per cent of retail sales when comparing like for like categories (excluding fuel, motor vehicles and parts, accommodation, food and beverage services). If groceries and liquor are also excluded, online sales account for 11 per cent of total sales1.
Comparing to other similar countries, our online shopping penetration is about average. Australians also do eight per cent of their shopping online, and in the United States it is nine per cent. The UK and China have much higher penetration at 19 and 23 per cent respectively2. These countries have dense populations making them easier to service with quick deliveries. Online retailers in these countries have also worked hard to offer premium services and comprehensive product ranges to move customers online.
New Zealand’s total annual online retail spending is now $4.4 billion. Of that, around 32 per cent is spent with offshore merchants. By transactions, offshore merchants account for around 45 per cent of trade3, but this is expected to increase over time. Interestingly, spending by New Zealanders on Kiwi websites is higher per transaction than in foreign websites.
The biggest categories for online shopping are department, variety and miscellaneous at 34 per cent of all online sales, and clothing and footwear at 17 per cent. A significant proportion of these sales are with international merchants and we are therefore seeing a slow down for domestic merchants in these categories. The food, groceries and liquor category now account for 17 per cent of online sales4. Since these sales are largely with domestic merchants they are still being recorded in the sales income data cited above.
Domestic spending (68%)
International spending (32%)
TOTAL ONLINE SHOPPING
6%
8%
10%
12%
14%
16%
2020 2022 2024 2026 2028
18%
4%
Per
cent
age
of a
ll re
tail
sale
s
2021 2023 2025 20272015 2017 20192014 2016 20182013
Proportion of overall spending 7.7%
Proportion of overall spending (excl. grocery and liquor) 11.1%
2029 2030
13.1%
16.0%
About 10% of Kiwis work in retail, most in a
handful of larger firms
12.
HOW IS THE RETAIL MARKET COMPRISED?• Retail is a large employer, accounting for almost 10 per cent of New Zealand’s workforce.• The number of retail outlets has taken some time to recover after the Global Financial
Crisis and the trend is towards larger stores servicing larger numbers of people.• Retail is overwhelmingly dominated by small to medium sized enterprises. 89 per cent
of retail businesses employ fewer than 10 people. However, the largest retail businesses employ almost half of the total retail workforce.
• There was a net decrease in the number of retail outlets in 2017 for the first time since 2012.• The average net margin for retail businesses was just 3.7 per cent in 2017.• The average annual sales per retail employee is just over $340,000.
RETAIL OUTLETS AND JOBSThere are currently just over 28,000 retail businesses in New Zealand, which between them have 35,000 different outlets. The number of retail outlets has seen fluctuations since 2000, particularly during the Global Financial Crisis when numbers declined sharply.
27,000
29,000
31,000
33,000
35,000
37,000
2000
2002
TOTAL NUMBER OF RETAIL OUTLETS
25,000
35,367
2001
2003
2005
2004
2006
2008
2007
2009
2011
2010
2013
2012
2014
2016
2015
2017
Retail stores will help customers experience
the theatre of retail
2000
2002
2001
2003
2005
2004
2006
2008
2007
2009
2011
2010
2013
2012
2014
2016
2015
2017
13.
TOTAL NUMBER OF RETAIL EMPLOYEES
Retail comprises 5.3 per cent of all businesses in New Zealand and the sector employs around 215,000 employees, which is almost 10 per cent of New Zealand’s total work force. Retail has high employment numbers for the number of businesses it represents indicating that, compared with other sectors there is a smaller proportion of businesses employing large numbers of people.
While the number of retail outlets has seen a small increase in recent years the numbers are declining on a per capita basis. On average there is currently one retail store for every 135 people today, in comparison to 128 people in 2000. This means that fewer stores are servicing more people. These changes reflect the changing shopping environment with larger stores servicing more densely populated areas. The growth in online shopping may also be contributing as businesses need fewer (or no) physical outlets to reach customers. The number of retail jobs per capita is currently at the same level as 2000.
Retail stores are likely to change and evolve over the next decade focusing more on helping customers experience the theatre of retail. Notwithstanding the rise of online shopping, looking into the future there is likely to be a strong future of bricks and mortar stores because they offer customers an experience not just a product.
While we are expecting the overall number of outlets to increase (by 2030 we expect there to be around 40,000 retail outlets in New Zealand), on a per capita basis we expect a slight decrease with one for every 133 people in 2030.
170,000
180,000
190,000
200,000
210,000
220,000
230,000
215,300
14.
THE TWO FACES OF RETAIL IN NEW ZEALANDThere are two quite distinct faces of retail in New Zealand – the very small businesses with few or no employees and the very large businesses with a huge workforce.
Retail is overwhelmingly dominated by small to medium sized enterprises. Around 25,000 (89 per cent) of retail businesses in New Zealand currently employ fewer than 10 people. However, the 342 retail businesses that have over 100 employees employ just over half of the retail work force. These larger firms do the heavy lifting in terms of employment.
The same picture can be painted when we look at the number of retail business in terms of annual sales income. The sector is dominated by small businesses, with 75 per cent of all businesses earning less than $1 million in sales income.
10-1
9 em
ploy
ees
6-9
empl
oyee
s
1-5
empl
oyee
s
Zero
em
ploy
ees
TOTAL BUSINESSES AND EMPLOYEES
$100
k-<$
1m
>$0-
<$10
0k
Zero
RETAIL BUSINESS BY TOTAL SALES IN 2017
100+
em
ploy
ees
50-9
9 em
ploy
ees
20-4
9 em
ploy
ees
$1m
-<$5
m
$5m
-<$1
0m
$10m
-<$2
0m
$20m
-<$5
0m
$50m
-<$1
00m
$100
m-<
$200
m
$200
m+
20,000
0
40,000
60,000
80,000
100,000
120,000
2,000
0
4,000
6,000
8,000
10,000
12,000
14,000Number of retail businesses
Number of retail employees
13,722
22,900
8,970
02,286
16,500
1,734
23,10020,200 17,900
114,800
342252699447
7,086
13,152
5,427
795342 297 144 48 24
15.
RETAIL BUSINESSES ARE RELATIVELY SHORT-LIVEDRetail businesses are relatively short-lived with the five-year survival rate for businesses that opened in 2012 just 39 per cent.
There has been a large increase in retail outlet closures since 2014 with an accompanying slight drop in new businesses opening. Five of the 12 categories saw reduced numbers of retail outlets over the past three years. The "clothing, footwear and personal accessories" and "recreational goods" categories were most negatively impacted. "Non-store and commission based" retail outlets (including online only retailers) increased.
Overall, there were 3,906 retail outlet closures in 2017 and 3,804 opened resulting in a net decrease of 102. This was first year since 2012 that the number of closures was greater than the number of new outlets.
2,500
3,000
3,500
4,000
4,500
RETAIL OUTLET - OPENINGS AND CLOSINGS
2,0002008 2010 2012 2014 20162009 2011 2013 20152003 2005 20072002 2004 20062001 2017
3,906
3,804
Number of new retail stores Number of retail store closures
CHANGES IN NUMBER OF OUTLETS 2014-2017
123 more outlets
219 more outlets
282 more outlets
309 more outlets
447 more outlets
1047 more outlets
12 more outlets
99 fewer outlets
192 fewer outlets
75 fewer outlets (-1.1%)
15 fewer outlets (-0.8)
12 fewer outlets (-0.6%)
36 more outlets
Supermarket and grocery stores
Department stores
Specialised food
Motor vehicle and parts
Non-store and commission based retailing
Total retail outlets
Clothing, footwear and personal accessory
Pharmaceutical and other store based retailing
Recreational goods
Electrical and electronic goods
Hardware, building and garden supplies
Fuel
Furniture, floor coverings, houseware and textile goods
21.2%
3.1%
9.7%
7.9%
5.9%
6.7%
4.1%
3.0%
-4.2%
-3.6%
16.
SALES PER EMPLOYEE VARY WIDELYThe average annual sales income per retail employee is just over $340,000 but ranges widely from $1.1 million for fuel retailing to $162,000 for clothing, footwear and personal accessories retailing.
This demonstrates the very different staffing levels required depending on what type of service is offered. It also shows the impact that self-service and automation can have. Many fuel forecourts have self-service pumps and require very low staff numbers to service customers.
Average sales per employee is just over $340,000, but the average net margin in
the sector is just 3.7%
Furniture, floor coverings, houseware and textile goods
Specialised food (including liquor)
Supermarket and grocery stores
RETAIL SALES PER EMPLOYEE ($)
$343,228
$374,837
$397,566
$643,845
$1,136,464
$340,149
$319,313
$162,125
$257,077
$265,722
$274,593
Non-store commission based retailing
Furniture, floor coverings, houseware and textile goods
Electrical and electronic goods
Motor vehicle and parts
Fuel
All retail sectors
Pharmaceutical and other store based retailing
Department stores
Clothing, footwear and personal accessory
Recreational goods
Supermarket and grocery stores
Specialised food (including liquor)
Hardware, building and garden supplies
$253,316
$215,959
17.
WHAT IS NET MARGIN?Net margin is the profit after costs have been deducted. For retailers these costs include buying the goods it sells, wages, property rental and insurances.
While this is a useful measure for benchmarking performance in a certain category, caution is required when comparing an individual store across categories which may be operating quite different business models.
NET MARGINS ARE LOW ACROSS THE SECTORThe average net margin across the retail sector was 3.7 per cent in 2017.
Margins range from 1.0 per cent for motor vehicles and parts retailers to 7.5 per cent for clothing, footwear and personal accessories. For low overhead or high-volume categories, lower margins can be expected.
AVERAGE NET MARGIN
4.8%
4.8%
4.8%
5.4%
7.5%
3.7%
4.7%
1.0%
4.5%Hardware, building and garden supplies
Furniture, floor coverings, houseware and textile goods
Department stores
Recreational goods
Clothing, footwear and personal accessory
All retail sectors
Electrical and electronic goods
Pharmaceutical and other store based retailing
Fuel
Motor vehicle and parts
Non-store commission based retailing
Specialised food (including liquor)
Supermarket and grocery stores
3.5%
2.2%
2.1%
1.9%
WHAT WILL RETAIL LOOK LIKE IN 10 YEARS?
Larger stores, but also strong small niche retailIt is likely that the trend towards larger stores with fewer workers servicing more people will continue, but there will still be a significant and important place for small retail businesses. It will be essential for small to medium-sized retailers to offer an excellent in-store experience and/or unique product range to stand out from the crowd.
Online shopping will continue to grow with both domestic and international merchantsOnline shopping in New Zealand will continue to grow, with 13 per cent of all shopping in 2030 being done online. The domestic supermarket sector will experience strong growth while books, clothing and footwear will likely be dominated by international merchants. Domestic retailers operating online will continue to operate in a highly competitive global playing field, and ‘being found’ online will be essential.
Vertical integration will be the normSuccessful retailers will increasingly be procuring and manufacturing their own branded products. They will be competing with manufacturers who are increasingly seeking to retail their products direct to consumers. Niche retailers will be building solid businesses around their brands, developing products specifically to suit customer demand, and driving demand through innovative social marketing.
Retailers will be highly responsive to customer demandToday’s consumers have better access to information that ever. Retailers of the future, whether online or in-store, will need to be highly responsive to consumer demands for service and products. Online platforms will allow retailers to understand and keep up with customer demand like they never have before. Shoppers will be increasingly concerned about the ethics and sustainability of the products they consume. Brand and reputation will continue to be extremely important in the era of social media.
1.
2.
3.Our research so far has taken
a long look back at the past but within this information there
may be some clues about what the future holds for retail in NZ.
4.
18.
13%
$120.6 bnannual retail sales ($92.3 billion in 2018)
of all retail spending will be online(8 per cent in 2018)
PREDICTIONS FOR 2030
40,000
50%of all online transactions will be with offshore merchants(45 per cent in 2018)
retail outlets(14 per cent more than 2017)
233,000retail employees(8 per cent more than 2018)
Published by Retail NZ in October 2018PO Box 12-086, Wellington
Freephone: 0800 472 472 Email: [email protected]: www.retail.kiwi
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