Kiwi Small Businesses Record Largest Decline In Sales Since May 2020

Kiwi small businesses still attracting staff despite financial strain

Wellington — 25 July, 2024 — Xero, the global small business platform, today released its Xero Small Business Insights data for the June quarter, which revealed small business sales in Aotearoa dropped, while jobs and wage growth remained strong.

Sales fell 1.5% year-on-year (y/y) in the June quarter, experiencing a decline for two consecutive months in May (-2.4% y/y) and June (-8.3% y/y), marking the largest monthly fall since May 2020 when the whole of Aotearoa was in the first Covid-19 lockdown.

Paul Churchman, Xero NZ Head of Sales, says the declining sales growth is a concerning indication small businesses are facing pressure from the country’s turbulent economy.

“After what looked to be a more positive start to 2024, this sharp decline in sales suggests small businesses are not faring so well,” says Churchman.

“The latest inflation figure from Statistics New Zealand was 3.3% for the June quarter. Adjusting the nominal XSBI data to real data, this indicates small business sales are even weaker, down 4.8% in the June quarter.”

All industries experienced a sales decline in June. Across the quarter, only two recorded positive sales growth - real estate (+0.9% y/y) and other services (+0.1% y/y).

The largest quarterly declines were hospitality (-3.7% y/y), construction (-3.4% y/y) and retail trade (-3.3% y/y). These sectors were hit hardest in June with hospitality down 10%, construction 10% and retail trade 11.4%.

“These three industries are all particularly sensitive to the impact of high interest rates, as consumers tighten their purse strings, paring back their non-essential spending, and delaying big purchases,” says Churchman.

All regions tracked recorded a decline in sales in the month of June, with Waikato (-13.5% y/y), Taranaki (-11.7% y/y) and Manawatu-Whanganui (-9.9% y/y), experiencing the sharpest drops. For the quarter, the only rise was in Northland (+1.5% y/y), while the largest falls were in Waikato (-4.7% y/y) and Taranaki (-2.6% y/y).

Compared to international counterparts, New Zealand experienced the largest monthly sales drop in June, more than double Australia’s (-3.5% y/y), and more than the UK’s (-5.2%).

Small businesses still attracting staff, despite financial strain

Jobs rose 6.7% y/y over the June quarter, slightly below the 7.0% rise in the March quarter.

For the past 18 months, jobs growth has been gradually slowing after peaking at 9.0% y/y in the March quarter 2023. Nevertheless, it remains well above the pre-pandemic average of 3.0% y/y.

“This steady jobs growth reflects how small business owners remain hopeful about the future, ensuring the small business sector is prepared and fully resourced for when economic conditions improve,” says Churchman.

“We’ve also seen a number of redundancies across big firms and the public sector, potentially providing Kiwis with an opportunity to slot into new small business roles.

“While it’s encouraging to see small businesses so optimistic, this form of labour management won’t be sustainable long term if sales continue to decline.”

Not all industries are experiencing jobs growth as quickly as the national result - hospitality (+3.0% y/y) and agriculture (+4.7% y/y) had the smallest increases in jobs during the June quarter. Meanwhile, professional services (+7.4% y/y) and other services (+10.2% y/y) had gains above the national average.

Jobs growth varied across regions, with the largest quarterly gains in Hawke's Bay (9.7% y/y) and Waikato (+7.6% y/y).

Whereas, Manawatu-Whanganui (+5.4% y/y) and Auckland (+5.9% y/y) had the smallest rises - although both of these are still strong by historical standards.

Wages grow across the quarter

Small business wages grew 3.6% y/y in the June quarter, the largest rise since the March quarter 2023.

“While labour market tightness has eased slightly in the past year, this acceleration of wage growth suggests small businesses remain eager, and are currently able, to pay larger wages to attract talent.

“This likely comes back to small businesses wanting to be primed for when conditions improve, with many having been impacted by the post-pandemic skill shortages.

“However, paired with the continued jobs growth, this raises the question of how long small businesses will be able to sustain this trend if sales don’t pick up,” says Churchman.

Construction (+4.1% y/y) and other services (+3.8% y/y) offered wages above the national average in the latest quarter. The smallest wage rises were in agriculture (+2.9% y/y).

Crucial for small businesses to know their numbers

“This data is a reflection of just how challenging the market is for small businesses at the moment. We need to continue supporting our small businesses by shopping locally where we can.

“It’s also crucial for small business owners to stay across their finances and consider working closely with a financial advisor.

“Not only will this help them make informed decisions about their business, but it will help them understand how their business is placed and navigate the challenging road ahead,” Churchman concludes.

About Xero

Xero is a global small business platform with 4.2 million subscribers. Xero’s smart tools help small businesses and their advisors to manage core accounting functions like tax and bank reconciliation, and complete other important small business tasks like payroll and payments. Xero’s extensive ecosystem of connected apps and connections to banks and other financial institutions provide a range of solutions from within Xero’s open platform to help small businesses run their business and manage their finances more efficiently.

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