New Zealand Retail Needs The Feel Good Factor

By Cameron Brewer

People often tell me that New Zealand is over-shopped - that we have too many shops for a country smaller than Sydney. It wasn’t an issue when the economy was roaring along five years ago, but the oversupply of shops across the country is now obvious.

Not only do councils and developers need to take responsibility for building all these shopping centres and retail parks over the past decade, but landlords now need to get realistic.

Rents have just got too high and now don’t match retailers’ narrow profit margins. In Newmarket some retailers are paying in excess of $200,000 per annum as a base rent for 100 square metres. We’re now starting to see some correction, with some landlords offering their tenants rent relief, but frankly more need to come to the party.

At the end of day the law of supply and demand is the only way to sort out landlords. While many played tough last year, more are now being forced to meet the market realising that attracting or maintaining a good tenant is more feasible than an empty shop.

The market has also sorted out the good and not so good retailers. In Newmarket, during the good years, we saw a number of shops open up, based on a dream not a good business case. When consumer confidence and spending started to slide two years ago, marginal businesses were never going to sustain the high fixed overheads.

Retail has had a very difficult two years, but let’s not forget it has come off a high base. In the decade from the Asian Economic Crisis in 1997 to 2007 annual retail spending in New Zealand nearly doubled from about $38billion to $66billion. They were great years, with new shops springing up two a penny.

Confidence was through the roof in 2003, with Auckland house prices rising 19% that year. I know because my wife and I were literally among the queues at open homes trying to buy our first house.

Seven years on and there are a lot of real estate agents puffing to find buyers. There are also plenty of retailers who are struggling to secure a line of credit with their suppliers, let alone attract customers.

We technically pulled out of recession in the third quarter of last year, with most people thinking 2010 was going to be better. However for many New Zealanders their own situation is worse this year.

Retail relies so much on the ‘feel good factor’. Consumer and business confidence is down and inflation is heading to record levels when you consider the extra costs around the Emissions Trading Scheme and the imminent GST rise. Household budgets are being really stretched. In fact real incomes are going backwards, with wages and salaries flat lining against increasing fixed costs.

Some good news will come in the fourth quarter of this year. Across-the-board tax cuts take effect from 1 October and will inject about $1billion in the economy. Dairy giant Fonterra is promising its 11,000 farmer shareholders a solid payout this summer, which will filter through to the towns and cities. While Auckland’s massive municipal amalgamation will finally bring some certainty to the country’s commercial capital.

In Newmarket we’ve had some shop vacancies like everywhere else, but notably we haven’t lost and big or old names. Without doubt however, the opening of Mt Wellington’s Sylvia Park shopping centre in 2006 and Westfield Albany in 2008 have had an impact on Auckland’s retail landscape

Both of these centres, which have close to 200 shops and thousands of car-parks, each take up to $1million out of the Auckland regional economy every day of the week. That has affected Auckland’s other shopping centres and districts.

In Newmarket, we took the opportunity in the good years to build our infrastructure and differentiate ourselves. Pushing your strengths and individuality, as we have done with ‘The Fashion Capital of New Zealand’ is what Auckland’s 40 town centres will need to do more of with under ‘super city’.

Alarmingly, however it remains unclear as to which governing body will drive the success of Auckland’s town centres and even if there’ll be a single town centre strategy.

Town centres are a major contributor to Auckland’s GDP, are a big employer, and help define what make’s the region’s many different areas so unique. However no one knows who will control their future. Will it be the local board, the Auckland Council itself, or the economic development CCO? With a potential void, the many business associations around the region will need to step up.

In 12 months time New Zealand will kick off the Rugby World Cup. For retailers and those in hospitality this may provide a six-week boost but it will be no panacea to anyone’s problems. It will however help rally our country, after a trying economic period.

It’s not any cash injection during the tournament that’s important. Rather it’s the fact that the Rugby World Cup could prove to be a timely circuit breaker. It will put New Zealand on the international stage and lift Kiwis’ spirits. The challenge will be keeping people positive after the show has left town. Giving us back the ‘feel good factor’ could well be the Rugby World Cup’s greatest legacy.

Ends

Cameron Brewer this week leaves his role as chief executive of the Newmarket Business Association after five years. He remains on the board of Towns & Cities New Zealand.

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