Retail warning bells ringing, receiver says

Shoppers have been spending freely this year but  is it all just retail therapy?
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Shoppers have been spending freely this year but is it all just retail therapy?

Cash registers have been ringing loudly this year but local retailers are vulnerable in the year ahead.

That's the view of Conor McElhinney, a partner with McGrathNicol, which has helped handle the aftermath of several high-profile retail collapses including Dick Smith in the last year.

McElhinney, who stressed his opinions were his own, said consumers have been spending up a storm, with core retail spending up 5.2 per cent for the year to June excluding fuel and cars.

Offshore competition for local retailers is growing, both physically and online.
MATT CARDY/GETTY IMAGES

Offshore competition for local retailers is growing, both physically and online.

But it was "out of step" with consumer confidence which fell in seven of the last nine quarters and was below historical averages.

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"The one year and five year outlooks are also much worse than a year ago: this degree of nervousness is normally only seen when the economy is in recession," he said.

He wondered whether Kiwis were being unjustifiably pessimistic, perhaps because of low dairy prices or the uncertainty of overseas events like the US election.

"Or does our low confidence reflect our concerns that growth has been fuelled by record net migration, rampant house price inflation and household debt, and the Canterbury rebuild, all of which could come to an abrupt halt with little warning?" 

McElhinney said retailers were vulnerable on two scores. 

Economically, the country would likely continue to be boosted by tourism, immigration and a recovering dairy sector.

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But the solid spending in homewares and building-related goods would be hit if there was a house price correction.

That had been seen in Australia, where sales of household goods had grown just 1.1 per cent in the last year, down from 11.9 per cent the year before.

As a result,  "we have already seen Woolworths Group announce the closure of Masters in Australia, due to its inability to compete with Bunnings in a slowing market," he said.

Secondly, local retailers would "continue to struggle" against international retailers, both online and in store.

"Retailers need to examine closely the reasons behind recent failures and ensure their business model is robust enough to withstand the challenges ahead," McElhinney urged.

Greg Harford, public affairs manager for Retail NZ, agreed there was a little more nervousness in the air, despite the good year.

"In terms of spending it's still up and we know that that hardware segment has had significant growth over the last quarter.

"But a large proportion of that had been trade-related rather than consumer-related, so that's pointing to house building rather than people refurbishing and so forth."

"The other thing we're hearing is there's a lot of speculation about new firms entering from Australia.

"We've obviously had Topshop, H&M and Zara, and David Jones, but we've heard there are others looking at the market as well."

McElhinney advised clothing companies in particular to learn from a string of apparel company failures in the last year. 

Despite strong growth of 5.1 per cent, the year saw a number of high-profile closures including Valleygirl/Temt, Wild Pair, Identity, Nicholas Jermyn, Jean Jones and Laura Ashley. 

McElhinney said he saw the same problems recurring time and again, with retailers lacking basic metrics to monitor the business, or locked into unprofitable stores with no easy exit from their leases.

They might also be unable to compete on price or range with overseas competitors, or respond quickly to changes in fashions and supply chains.

As the administrators for Dick Smith, McGrathNicol had seen that strong electronics sales could not save it from excess stock and supply chain problems, he said.

Among the regions, Auckland was the fastest growing retail centre, up 8.1 per cent as it continued to enjoy record net migration and house price appreciation. 

Retail growth in Christchurch had stalled at 0.5 per cent, compared with 9.4 per cent in 2015 and Wellington was flat.

The rest of the North Island and the South Island showed much better growth in 2016, up 3.7 per cent versus 1.5 per cent and 0.2 per cent respectively the year before.

Read the report here. 

 - Stuff

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