It's a market that is highly dynamic; constantly changing to .... domestic merchants they are still being recorded in th
Dynamic Retail 2018 An overview of the New Zealand retail market
1.
RETAIL OVERVIEW 2018:
a Retail NZ research report Retail 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 Fisher Chief Executive - Retail NZ
CONTENTS Executive summary The retail industry
4 5
Retail sector performance Retail spending Average annual retail spend per person International comparisons Online retailing
6 7 10 11
How is the retail market comprised? Retail outlets and jobs The two faces of retail in New Zealand Retail businesses are relatively short-lived Sales per employee vary widely Net margins are low across the sector
12 14 15 16 17
What will retail look like in 10 years? Predictions for 2030
19
4.
EXECUTIVE SUMMARY Overall, 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
35,367 retail premises in NZ
3.7%
average profit margin
10% 89%
of all NZ jobs are in retail
of retailers employ fewer than 10 people
13,722
retail businesses employ no staff
8%
of all retail spending is online
6.
RETAIL SECTOR PERFORMANCE
RETAIL SPENDING Retail 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.
RETAIL SPEND* $140 bn
• 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.
$120 bn
Actual spend $92.3 bn
$100 bn $80 bn $60 bn
$58.5 bn
$40 bn
2000 spend adjusted for inflation
$20 bn * Excludes GST
$0 2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
7.
AVERAGE ANNUAL RETAIL SPEND PER PERSON In 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.
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.
RETAIL SPEND PER CAPITA* $20,000 $18,953 $15,000 $15,159 $10,000
Actual spend per person
2000 spend adjusted for inflation
$5,000
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 GST (15%)
* Excludes GST
$0 2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
TOTAL
$ 18,953 $2,843 $21,796
8.
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.
ACTUAL RETAIL SPEND* - SIX BIGGEST CATEGORIES Supermarket and grocery stores
$20 bn
Motor vehicle and parts
$15 bn
Food and beverage services $10 bn
Hardware, building and garden supplies Fuel
$5 bn
Department stores * Excludes GST
$0 2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
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.
TOTAL GROWTH IN ACTUAL RETAIL SALES 2000-2018 Total growth
132%
Non-store and commission based retailing
335%
Specialised food (excluding liquor)
188% 181%
Food and beverage services
173%
Accommodation Electrical and electronic goods
150% 139%
Supermarket and grocery stores
135%
Fuel Hardware, building and garden supplies
127%
Pharmaceutical and other store based retailing
121%
Motor vehicle and parts
119%
Furniture, floor coverings, houseware and textile goods
106%
Clothing, footwear and personal accessory
105% 97%
Liquor Department stores Recreational goods
94% 54%
Total sales have increased by 132% since 2000
10.
INTERNATIONAL COMPARISONS Taking 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.
0%
0% NT
1%
WA
2%
QLD
2%
SA
4%
ACT
3%
TAS
6%
VIC
4%
Singapore
8%
Australia
5%
New Zealand
10%
Malaysia
6%
Indonesia
12%
NZ
AUSTRALIA VS NEW ZEALAND TOTAL SALES GROWTH 2013-2017
NSW
ASIA-PACIFIC TOTAL SALES GROWTH 2013-2017
11.
ONLINE RETAILING Online shopping in New Zealand is on a par with Australia and the USA
A 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.
ONLINE SALES DOMESTIC VS. OFFSHORE
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.
Domestic transactions (55%) Domestic spending (68%) International transactions (45%) International spending (32%)
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.
TOTAL ONLINE SHOPPING
1
[Source BNZ Marketview] 2 [Source NZ Post eCommerce report] 3 [Source BNZ Marketview] 4 [Source NZ Post eCommerce report]
Percentage of all retail sales
18% 16% 14%
Proportion of overall spending (excl. grocery and liquor) 11.1%
16.0%
13.1%
12% 10% 8% 6%
Proportion of overall spending 7.7%
4% 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
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 JOBS There 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.
TOTAL NUMBER OF RETAIL OUTLETS 37,000 35,000
35,367
33,000 31,000 29,000 27,000
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
25,000 2000
About 10% of Kiwis work in retail, most in a handful of larger firms
13.
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.
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.
TOTAL NUMBER OF RETAIL EMPLOYEES 230,000 220,000
215,300
210,000 200,000 190,000 180,000
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
170,000 2000
Retail stores will help customers experience the theatre of retail
14.
THE TWO FACES OF RETAIL IN NEW ZEALAND There 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.
TOTAL BUSINESSES AND EMPLOYEES 120,000
RETAIL BUSINESS BY TOTAL SALES IN 2017 114,800
Number of retail businesses Number of retail employees
14,000
13,152
12,000
100,000
10,000 80,000 8,000
7,086
60,000 6,000 40,000
4,000
342
297
144
48
24
$20m-
