Higher house prices contributing to the rapid gentrification of suburbs across New Zealand pose yet another challenge
for small businesses owners, who may find the products and services that served them well a year ago no longer meet the
changing neighbourhood's needs.
BetterCo Business Advisors and Chartered Accounting firm director, Alister Siew, says his firm is working with some
small businesses whose profits are declining because their offerings don't meet the tastes of more affluent buyers
moving into Auckland suburbs like New Lynn, Glenn Innes and Mt Roskill.
"Where a year ago a pie and an energy drink were the standard stock-in-trade for say a small bakery, today it may be a
gourmet pie and a smoothie. Rising house prices, particularly in Auckland, are seeing some rapid changes as wealthier
people move in.
"For the most part, the more affluent can afford to be socially responsible and will support local businesses, but not
if your premises look rundown or the products you offer do not fit their taste."
The problem arises, says Siew, when businesses fail to move with the new market because they can't afford to pivot or
they catch on too late.
"Parking prices increase, rents rise, laundromats go quiet, and businesses that are without an exit plan or the ability
to pivot go out of business after having been around for twenty or thirty years in some cases.
"Gentrification usually happens over time, but I think with a median house price of more than $1.1 million in Auckland,
$730,000 in Hamilton and $890,000 in Wellington, it's happening much faster, catching some small traders flat-footed."
Siew said that where some landlords might refuse to renovate a building, the businesses usually end up paying the price.
"Affluent people like character and history, but they tend to avoid giving custom to companies in rundown buildings.
"It doesn't just affect traders. If you are an accounting firm or law firm, you're going to have to change some things
to make yourself more appealing to the changing neighbourhood."
He offers the following advice to small businesses owners both in Auckland and countrywide:1. Keep your fingers on the pulse
"Join the local business association, read the community newspaper and actively observe how your neighbourhood is
trending so that you respond to changes in the market before it begins to reflect in the cash register."2. Use technology to track your business
Siew says small traders who aren't using technology to track purchase behaviour should seriously consider investing in
tools like point-of-sale software or an accounting software like Xero.
"Using technology in your business is not expensive. While it is a bit of a learning curve, it will enable you to
understand your regular customers, their purchasing habits, cash flow forecasting, and your profit and loss.
"Just like you should keep your fingers on the pulse of your neighbourhood, you should do the same for your business –
get professional advice if the prospect intimidates you."3. Put in place an exit plan
An exit plan is not only a response to potential future threats; it is also valuable for ensuring you get a return on
your investment when the time comes to exit the business, whether that's a result of gentrification, market downturns or
retirement.
"If things do go unfortunately wrong – like a rent increase you cannot afford – you will at least have a plan to get you
out relatively unscathed."
Siew says that doing tax returns once a year or relying on customer loyalty or the quality of your products and services
won't cut it because when neighbourhoods change – and they are changing – everything gets turned upside down.
"It isn't only about preparing for the worst or preparing to pivot. Talk to a financial adviser about the opportunities
to create a better, more successful, profitable and valuable business. Change is inevitable, but how it ends is what you
make of it."
For more information: https://www.betterco.nz