Retail and Consumer Insights (Quarter 1 2024)

Introduction

PwC’s Retail and Consumer Quarterly Insights provides the latest trends in consumer behaviour both in New Zealand and globally. We analyse data from the PwC Retail and Consumer Dashboard (focusing on electronic spending by industry in New Zealand) to equip you with valuable insights to support your business decision-making. Our commentary also covers our observations on changes in the ANZ-Roy Morgan Consumer Confidence Index, Stats NZ, and other relevant local and global sources.

Key highlights from this edition include:

In New Zealand we have seen retailers exploring more with AI chat bots & virtual assistants. However companies, including retailers, are still in the discovery phases of these emerging technologies and are yet to adopt Gen AI or advanced AI in their businesses.
The ANZ-Roy Morgan Consumer Confidence Index for the first quarter of 2024 illustrated the impact of the current economic environment on consumers, with the overall confidence index declining across the start of 2024.
Stubborn inflation, elevated interest rates and a tough labour market exacerbated by job losses in both the public and private sectors have all contributed to restricting consumers' disposable income.
House price expectations were volatile across the quarter, falling to 3.40% in March after reaching near peak levels of 4.10% in February.
The number of electronic card transactions within core retail (excluding motor vehicles) has observed a 1.65% increase, from Q1 2023’s 363 million transactions to Q1 2024’s 369 million transactions. Transactional value has increased by 0.8%, indicating that consumers have shifted to more affordable options.
Similar to last year’s performance, the consumables and hospitality industries are still leading the growth in the first quarter of the year. Although spending has increased, it did not outperform inflation, which is consistent with the country’s economic performance, where we have met the technical definition of a recession after observing a drop in GDP for two consecutive quarters.
Under the current economic environment, retail and consumer businesses may want to focus on the following three key areas for continued growth:
- Focus on the most valuable customers
- Build an agile, streamlined operation
- Increase the impact of strategic relationships

To explore further, select the buttons below.

The Transformative Power of AI in Retail

In our recent CEO survey AI was top of mind for CEO’s locally with 58% thinking that GenAI will enhance the quality of their company's products and services.

In today’s fast-paced retail landscape, staying competitive requires more than just offering great products. It demands understanding customers at a deeper level, optimising operations, and delivering personalised experiences. Artificial Intelligence (AI), will be a game-changer for retail companies seeking to thrive in the digital age.

In New Zealand we have seen retailers exploring more with AI chat bots & virtual assistants such as Nola the Noel Leeming virtual assistant both instore and online. However companies, including retailers, are still in the discovery phases of these emerging technologies and are yet to adopt Gen AI or advanced AI in their businesses.

Globally 60% of consumer market leaders have made investing in emerging technologies a strategic priority for 2024 with the belief that it has the power to reinvent their business models.

How fast retailers can adapt with new technology as customer behaviours evolve to nurture customer loyalty will be critical for success.

The top three ways AI can be used to reshape the customer experience and enable tech assisted shopping are:

Customer Insights and Personalisation

AI enables retailers to analyse vast amounts of customer data to understand preferences, behaviours, and trends. With this information, companies can personalise product recommendations, tailor marketing campaigns, and elevate the overall shopping journey. Whether it’s suggesting relevant products based on past purchases or providing real-time offers, AI enables retailers to engage with customers on a more individual level.

Enhanced
Customer Service

AI-powered chatbots and virtual assistants are transforming customer service. These intelligent systems can handle a wide range of inquiries, from product information to order tracking, providing instant assistance to customers at any time. By automating routine tasks, retailers can allocate human resources to address more complex issues, ultimately improving customer satisfaction and fostering loyalty.

Immersive
Experience

Retailers can introduce innovative shopping experiences like visual search and Augmented Reality (AR) try-on tools. Visual search allows customers to find products by simply uploading images, while AR technology enables virtual try-ons of clothing, accessories, or furniture aiding purchase decisions. This not only enriches the customer journey but also boosts sales by minimising uncertainties about product fit or style.

Globally AI is reshaping the retail industry by empowering companies to understand their customers, optimise operations, and deliver personalised experiences. For retailers in New Zealand embracing these technologies is crucial in staying ahead of the curve, driving growth, and creating lasting connections with customers.

Consumer confidence

The first quarter of 2024 featured a magnitude of headlines highlighting New Zealand entering a technical recession and significant job losses throughout the economy. The persistent economic headwinds of sticky inflation, high interest rates and two quarters of declining Gross Domestic Product continued to place pressure on retailers throughout New Zealand.

The ANZ-Roy Morgan Consumer Confidence Index for the first quarter of 2024 illustrated the impact of the current economic environment on consumers, with the overall confidence index declining across the start of 2024. Prior to this, consumer confidence had been steadily increasing since mid 2023, with a 2 year high of 94.5 recorded in February. Consumer confidence then proceeded to significantly drop to 86.4 in March, well below the pre-Covid historical average of 120 points (index numbers). Much of this decrease in consumer confidence is believed to be tied to the labour market which is beginning to feel the lagged effect of slowing private and public activity.

ANZ-Roy Morgan Consumer Confidence Index

The outlook for retailers remains uncertain as Consumer Confidence has begun to decline once again. Stubborn inflation, elevated interest rates and a tightening labour market exacerbated by job losses in both the public and private sectors have all contributed to restricting consumers' disposable income.

Sean Yang

A key indicator of retail spending is the portion of people who believe it is a good time to buy a major household item. Within the Consumer Confidence survey, this measure declined across the quarter from -19 at the start of the year to -24 in March. This has improved from the sustained period of historic lows that was experienced last year. However, the measure has remained negative since late 2021, illustrating the impact of the current economic environment on consumer behaviour. This relationship between the outlook by consumers for spending on major household items and actual retail spending can be seen in the retail sales figures, declining for the eight quarter in a row in December 2023.

Generally, do you think now is a good time, or a bad time, for people to buy major household items?

While inflation fell to 4.00% in the year to March, the lowest level since September 2021, the consumer confidence figures show that the high cost of living has been driving a perception that sticky inflation may continue to be an issue in the coming years. Consumer expectations relating to the outlook for inflation and the wider New Zealand economy remain well above the Reserve Bank of New Zealand’s (‘RBNZ’) target inflation level of 1% - 3%. Consumer’s expectation of prices 2-years ahead increased to 4.50% across the quarter, up from 3.90% at the end of 2023. High inflation and consumers' anticipation of inflation ultimately leads to challenges for retailers as disposable incomes are reduced.

Expectations for house prices were volatile across the quarter. In March, expectations were at near peak levels with an increase of 4.10% in house prices anticipated across the next two years. This then fell to an expected increase of 3.40% in March. House prices continue to be a point of particular interest to New Zealanders with a range of articles this quarter highlighting the evolving influences on house price expectations. February highlighted the record migration that occurred to New Zealand in 2023, with concerns being raised over insufficient new home builds given the sustained level of population growth. Housing related headlines in March then turned to focusing on the higher number of houses for sale driving down house prices, and ultimately expectations for house price increases.

Specifically thinking about the prices of houses, during the next 2 years, do you think that the price of houses in general will go up, or go down, or stay where thay are now?

Spend trends

Although spending has increased, it did not outperform inflation, which is consistent with the country’s economic performance. New Zealand met the conditions for the technical definition of a recession in March 2024 after observing a drop in GDP for two consecutive quarters.

The Stats NZ electronic card transactions series data provides insights into changes in consumer spending habits, including all debit, credit and charge card transactions with New Zealand-based merchants. Using our Retail and Consumer Dashboard, we can compare year-to-date (YTD) and quarter-on-quarter (QOQ) retail-related electronic spend data by sector with the corresponding periods in 2023.

Inflation continues to have a significant impact on the value of card transactions. As seen in the chart below, the percentage change in quarterly volume of electronic card transactions has been on a downward trend for both the core retail (consumables, durables, hospitality and apparel) and retail industries (fuel and vehicles).

Electronic Card Transaction - Number of Transactions

Percentage Change in Quarterly Volumes of Electronic Cards Transactions

The number of electronic transactions dropped in March, albeit were slightly up for the March quarter. According to Kiwibank, this is evident of the harsh reality that all New Zealanders are currently facing. High inflation and increasing interest rates have made kiwis reluctant to spend and this is likely to be the trend in the coming quarters as we try to navigate through the recessionary environment.

Furthermore, according to ANZ chief economist, Sharon Zollner, while prices have drastically increased over the past year, spending across a range of categories that are considered discretionary is still lower, when compared to the same period last year. In short, a sharp reduction in volume. For example, Easter spending in 2024 was relatively weaker when compared to Easter spending in 2023 despite the price inflationary impact. This further reflects the softness in the economy where people are being mindful of where they are spending money.

The number of electronic card transactions within core retail (excluding motor vehicles) has observed a 1.65% increase, from Q1 2023’s 363 million transactions to Q1 2024’s 369 million transactions. While transactional value only increased by 0.8%, indicating that consumers have shifted to more affordable options.

Percentage change in seasonally adjusted card transactions value by industry, February 2024 - March 2024

Within the retail industries category, the largest movements in spending on a seasonally adjusted basis between February and March 2024 were:

Fuel, down $7.7m (-1.4%)

Apparel, down $7.5m (-2.2%)

Motor vehicles (excluding fuel), down $4.5m (-2.2%)

Using the PwC Retail and Consumer Dashboard, we also analysed YTD electronic spending and quarter on quarter changes by retail category. Similar to last year’s performance, the consumables and hospitality industries are still leading the growth in the first quarter of the year. Growth in hospitality comes as somewhat of a surprise to us, but likely indicates the continued growth in tourism spend (from a low base) on both a domestic and international level.

International insights

Growth in an uncertain economy

Inflation, rising interest rates, spiking commodity prices, supply chain snarls and an unpredictable labour supply are all converging to squeeze margins and profitability for global consumer packaged goods (CPG) companies. Meanwhile, the decline in consumer purchasing power is of great concern to almost half (49%) of executives.

Slower growth, smaller margins

The global industry’s recent performance suggests that slowing revenue growth and rising costs will likely lead to declining net margins. We analysed the impact of several economic forces on key financial metrics for 10 top-tier US consumer and household products companies, and compared their performance during the 2017-21 period with their estimated performance in Q1 2023.

In this relentless economic environment, we recommend companies look to three main areas for growth:

Focus on the most valuable customers

Build an agile, streamlined operation

Increase the impact of strategic relationships

Looking ahead, there is no one-size-fits-all growth formula because each company has its own distinctive characteristics. The only constant is a strong strategic vision flexible enough to weather economic turbulence while preparing for the future.

Recent news

The New Zealand aviation industry remains in the news. Consumer NZ and NZ Airports Association have called for enhanced visibility over airfare pricing, accusing Air New Zealand of exploiting its 86 per cent share of the domestic market. This comes after airlines criticised Auckland Airport for increasing aeronautical charges in order to fund infrastructure upgrades that they deemed unnecessarily expensive.
The Commerce Commission dismisses complaints from The Warehouse regarding Sanitarium’s decision to withdraw Weet-Bix from its shelves following The Warehouse selling Weet-Bix at a discounted price to both Foodstuffs and Woolworths Supermarkets. In the commission’s response to The Warehouse, they stated that no evidence was found to suggest Sanitarium’s conduct was intended to substantially lessen competition.
Kate Sylvester announced that the design business and six retail stores would be closing down citing a desire to undertake other opportunities after 31 years. Sylvester stated that she made the decision to close rather than sell the label as she wanted to retain control of her name.
Briscoes Group including both Briscoes Homeware and Rebel Sport reported record sales for FY23. Profit however, fell almost 4% as margins decreased.
Trade Aid, a not for profit retail store promoting ethical trade is closing its 24 stores throughout New Zealand. Trade Aid will continue to import fair trade products and operate as an online retailer.
Retailers continue to call for legislative change of the Shop Trading Hours Act citing that the Easter trading rules were confusing for the public with inconsistent restrictions nationwide. Retail NZ stated the Easter trading rules were increasingly outdated and no longer fit for purpose.

Recent Deals

New Zealand beauty brand Essano was purchased by Melbourne’s Vitality Brands. Pencarrow owned 50% of Essano, with 37.5% held by the co-founders and the remaining 12.5% owned by a business consultant. Essano was established in 2000 by the founders making hair wax in their flat. Production now occurs within Essano’s 3550 sqm factory in Māngere, Auckland where operations will continue.
Toast Martinborough, a 30-year old wine and food festival held yearly in Martinborough, Wairarapa has been purchased by Foley Wines. The offer was accepted by all board members. Foley Wines owns multiple locations within the Wairarapa region including Te Kairanga, Runholder, Martinborough Vineyard Wineries, the Lighthouse Gin distillery and Wharekauhau Country Estate. In addition they operate three restaurants within Wellington, Shed 5, Crab Shack and Pravda.

Online grocery store, Supie has been partially purchased by online butcher, The Meat Box after being placed into voluntary administration last quarter. The Meat Box, owned by Kennerley Gourmet Grocery, acquired the trademarks and website domains of Supie.

The Warehouse Group has agreed to sell Torpedo7 to Tahua Partners for $1. Torpedo7 offers outdoor and sports equipment within New Zealand. The sale came after Torpedo7 reported a $22 million loss in 2023 and a 25% decline in sales within the October quarter.

United Kingdom travel management company, The Appointment Group (TAG) acquired two New Zealand travel companies, Sound Travels and Red Hot Travel & events. Sound travel focuses on entertainment organisations while Red Hot Travel & Events provides corporate travel management services. Tag offers corporate, private travel, events, touring, production and investment management. They have offices in 13 major cities worldwide.
ChargeNet completed the acquisition of 14 electric vehicle charging stations within Auckland from Vector.

PwC Retail and Consumer Dashboard

The PwC Retail and Consumer Dashboard is updated monthly to include the latest data on electronic spending, consumer sentiment and Auckland pedestrian analysis. Through our dashboard we identify and analyse trends over time. If you are interested in online access to our dashboard to help inform your decision making, please contact Beini Guo.

How we can help

PwC has a comprehensive understanding of the rapidly evolving retail and consumer environment (offline and online) and are uniquely placed to combine strategy with technical, industry and execution expertise. We pride ourselves on a focused partnership approach to our work in the retail and consumer sector, based on principles of trust, independence and challenging insight, using specialist teams tailored to specific client needs.

PwC has advised many of New Zealand’s largest listed and privately owned retailers and consumer products businesses in New Zealand. Our services encompass assurance, tax, capital solutions, transactions services, M&A, restructuring, real estate, supply chain and digital consulting services. We have recently supported clients in key areas such as portfolio management and network coverage, application of data and analytics, pricing and promotions, new product development, cost control, stock keeping unit (SKU) rationalisation, and logistics optimisation. If any of these topics are of interest to you, we would be delighted to have a conversation.