Strong retail growth drove New Zealand's small business sales but it may not been enough to take overall operations back to pre Covid.
Small business sales are soaring above pre-Covid levels but rising power bills, labour shortages and shipping costs are affecting profitability, a retail expert says.
June was the strongest month for small business revenue, according to cloud accounting firm Xero’s latest business insights.
Typically, the index compares year-on-year data but since Covid significantly impacted June 2020 compared sales based on annualised two year figures from 2019 and 2020.
Sales increased 11.7 percent compared to June 2019.
The retail sector dominated the strong performance up 16 percent, followed by manufacturing up 14 percent and construction 13.4 percent. The hospitality industry also continued its recent run of sales growth, up 10.4 percent.
Retail NZ chief executive Greg Harford says while sales have been high, profitability were slim.
Small businesses have been hit hard by the rising cost of power, shipping and labour. “Sales have been strong because of strong consumer demand. But the top line spending is masking some of the challenges businesses are facing. Costs are massively up, squeezing margins,” he says.
He says the growth in the housing market has stimulated retail spend. “If you’ve been fortunate enough to own a home you’re feeling a lot wealthier and interest rates are low."
But with interest rates tipped to rise from as early as next month, Harford says strong spending might start to slow down.
Kiwi clothing designer Vicki Taylor, who runs Taylor Boutique, says she has been “humbled” by the support from local shoppers.
“What I can say is that we’ve had a really good start to this year so far,” Taylor says. “We manufacture most of our clothes in New Zealand, and supply materials to other local businesses. So money customers spend here goes to other parts of the local economy. We’re feeling good."
Taylor says business wasn't quite back to pre-Covid, but had been doing better than she had expected.
Foot traffic has gone down considerably. “We’ve lost a lot of the people coming in for a wander and could be tempted to buy. We’re seeing customers coming in with the intention of buying things.”
Taylor, who manufactures 80 percent of her clothes in New Zealand, says shipping delays and costs are impacting the business.
Importing materials now costs four times as much as pre Covid and shoes she would typically receive from Italy within five weeks, take about 12 weeks to get into the country.
"Top line spending is masking some of the challenges businesses are facing. Costs are massively up, squeezing margins." – Greg Harford, Retail NZ
The job market is still looking very competitive.
Taylor says she has been looking to add two new positions, but has been struggling to find talent.
Westpac acting chief economist Michael Gordon says employment has continued to gather momentum in recent months, with the number of filled jobs up 1.1 percent in June. Filled jobs are now 1.8 percent above their pre-Covid peak.
“Sectors that have been more affected by the ongoing closure of the border, such as hospitality, transport and recreational services, are still below pre-Covid levels,” Gordon says.
“Notably, jobs in manufacturing have been flat, even though this sector has seen some of the strongest growth in job vacancies. It may be that this sector is losing out to construction in terms of attracting workers.”
June quarter labour market surveys will be released next Wednesday, but Gordon’s team is forecasting a drop in the unemployment rate from 4.7 percent to 4.5 percent – in line with ANZ’s forecast. ASB has forecast unemployment to drop to 4.4 percent.
