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Retail and Consumer Insights

May 2021

Introduction

PwC’s Retail and Consumer Insights provides the latest consumer behaviour news and trends in New Zealand and internationally. We analyse data from the PwC Retail and Consumer Dashboard (focusing on electronic spending by industry in New Zealand) to equip you with insights to inform your business decision making. Our commentary also covers our observations of key changes in the ANZ-Roy Morgan Consumer Confidence Index, Heart of the City footfall data and other local and global sources.  

Key highlights from our May 2021 edition include:

  • while the ANZ-Roy Morgan Consumer Confidence Index rose 4 points to 115 in April, it still remains short of its historical average of 120
  • consumer spending on durables has recovered rapidly to pre-COVID-19 levels, but supply chain constraints and a natural limit on substitution related durables purchases have caused spending in this category to plateau
  • year-on-year spending comparisons for the month of April have been distorted by the level 4 and 3 lockdowns in 2020, however hospitality spending in April 2021 was up 7.0% on April 2019 ($1.1bn)
  • the recent PwC 2021 Global Consumer Insights Pulse Survey highlighted that the share of e-commerce sales in the retail sector is expected to increase from 13.9% in 2019 to 22.4% in 2023, indicating an accelerating shift in consumer buying habits.

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Consumer confidence

Looking at the ANZ-Roy Morgan Consumer Confidence Index, it’s interesting to see that the Index rose 4 points to 115 in April. However, this still remains short of its historical average of 120.  Another important thing to note is that a net 18% of respondents think it is a good time to buy a major household item, which is up 4 points. From a retail perspective, this remains the single best indicator of consumer sentiment in the survey.

Despite the Government’s recently announced removal of tax-deductibility of interest on loans and an extension of the brightline test, house price inflation expectations in April were little changed at 6% p.a - a historically very high level. While house price inflation expectations appear to have peaked, there does not appear to be any meaningful market retreat as a result of the Government’s recent initiatives. Barfoot & Thompson reported the lowest level of property listings for five years at the end of April and new listings fell 21.7% on those for March, suggesting there was no major influx of new listings from investors abandoning the market2

"While April's residential property data trading was down from the levels recorded in March, it is important to recognise that there is always a seasonal downturn in April and the decline experienced this year does not appear to be significantly different from that seen in previous years."

John Schellekens - PwC Partner

 

 

Despite exceptionally strong household inflation expectations, consumers appear to remain cautious about making significant household purchase commitments, reflecting ongoing uncertainty about the economic outlook. Despite these reservations, retail sales reported by Stats NZ have remained buoyant, as the substitution of international holidays, the ‘feel good impact’ of house price inflation, low interest rates and historic levels of Government stimulus continues to support local retailers.   

References
1 With special thanks to PwC’s Matt Gunn and Rebecca Matthews for their assistance in preparing this edition.  

2  Stuff: https://www.nzherald.co.nz/business/barely-affected-vs-signs-of-change-what-to-take-from-latest-barfoot-thompson-house-sales-figures/

Spend trends

The disparity in consumer spending habits can be seen in the Stats NZ electronic card transactions series data that includes all debit, credit, and charge card transactions with New Zealand-based merchants. Using the Retail and Consumer Dashboard developed by PwC New Zealand, it is readily apparent that while consumer spending on durables3 recovered rapidly to pre-COVID-19 levels, supply chain constraints and a natural limit on substitution related durables purchases (how many jet skis or sofas do consumers really need?) have caused spending in this category to plateau.

Durables - Change in spending last 12 months

Hospitality - Change in spending last 12 months

Unfortunately, year-on-year figures for the month of April (released by Stats NZ on 11 May 2021) are distorted by record low levels of spending in April 2020 (due to New Zealand being in alert level 4 and 3 for the whole month), resulting in large increases in many sub-industries between April 2020 and April 2021, e.g. the hospitality industry was up $1.1 billion (1,942 %) from $57 million in April 2020 to $1.2 billion in April 2021. However, to put these figures in context, it is interesting to note that hospitality spending in April 2021 was up 7.0% on April 2019 ($1.1bn).

 

In terms of the much anticipated Australasian bubble, the benefits remain to be seen as anecdotal evidence suggests that during the first few weeks of the quarantine free trans-Tasman travel most arrivals appear to be visiting family and friends rather than boosting local businesses and tourism operators4.

References
3  Furniture, electrical, and hardware, recreational goods, department stores, pharmaceutical, cosmetic, toiletry goods and other store-based retailing.
4  Stuff: https://www.stuff.co.nz/travel/news/124929034/transtasman-bubble-aussie-travellers-visiting-loved-ones-rather-than-attractions

Auckland footfall insights

Our Retail and Consumer Dashboard also tracks pedestrian footfall data on an hourly basis across the Auckland CBD5. While the post lockdown recovery is immediately apparent, the longer term decline in pedestrian footfall across the Auckland CBD over (at least) the last three years is also worth noting.

Monthly Pedestrian Count (% change YoY)

Average Pedestrian Count (per hour)

Ongoing roadworks and disruption caused by construction activity, including the Central Rail Link, has contributed to this decline in pedestrian footfall and is clearly a cause for concern for inner-city retailers. Separately, Auckland Council’s Queen Street pedestrian trial has resulted in disgruntled businesses and property owners filing an unprecedented High Court action. The judicial review application claims that New Zealand’s once premier high street “has been reduced to two lanes by plastic sticks and bollards”. Recent proposals by the Wellington City Council to increase car parking charges in central Wellington will also be a concern to retailers who have already suffered as some workers appear reluctant to return to their offices. 

References
5  Source: Heart of the City: https://www.hotcity.co.nz/city-centre/results-and-statistics/pedestrian-counts

International insights

One year after the COVID-19 pandemic partially shut down many of the world’s economies, PwC recently released its 2021 Global Consumer Insights Pulse Survey6. In terms of the impact of COVID-19 on the retail sector, the survey found:

  • With lockdowns across the globe, the trend of online shopping became a spotlight. The closure of non-essential stores has led to almost complete erosion of revenue for those who did not have a presence in the digital channel before the crisis;
  • bulk buying of groceries and other household essentials has increased revenue but has also been a tremendous burden on the supply chain; and
  • retail technology investments will continue to reflect digital transformation efforts, as retailers reserve capital by reducing spending on store openings and remodels.

Perhaps more interestingly, going forward, the survey identified the following key international growth drivers for retailers:

  • The share of e-commerce sales in the retail sector is expected to increase from 13.9% in 2019 to 22.4% in 2023, indicating a shift in consumer buying habits;
  • 5G is expected to play a key role in advancing retailer’s digital aspirations to real-world applications in the coming years. It will drive digital engagements, analytics, Internet of Things (IoT), Augmented Reality (AR) / Virtual Reality(VR) and drone technology by providing the connectivity boost that can enhance these exponentially;
  • there is greater collaboration between retailers (i.e. sharing space to create traffic-driving synergies, large-stores seeking cotenants to repurpose extra space.);
  • in the Asia-Pacific region, the convergence of physical and online shopping experiences has led e-commerce players to acquire brick-and-mortar retailers to expand their consumer reach;
  • in the Americas, mall owners have been acquiring ailing retailers out of bankruptcy in an attempt to maintain mall occupancy levels against the backdrop of declining footfall; and
  • in EMEA, megadeals have continued to dominate the M&A landscape, triggered by portfolio reviews involving large grocery retailers and FMCGs.

References
6  8,738 participants in 22 territories

Recent news and deals

  • Recently released research from CANSTAR, an Australaisan retail finance research firm, highlighted the growing use of Buy Now Pay Later (BNPL) services by young New Zealanders. 25% of New Zealanders aged between 18 - 29 preferred to use BNPL platform for electronic purchases, compared to 5% of New Zealanders in their 60s.
  • British retailer JD Sports announced that it will open its first New Zealand store in Auckland’s Sylvia Park mall in the middle of this year. The athleisure retailer operates 850 stores around the world, including 30 in Australia.
  • Recently reported Paymark card transaction data highlighted the imbalance in the spending impact of current travel restrictions over Easter. Spending around Easter through Paymark amongst South Island Core Retail merchants was 1.2% above Easter 2019 levels. In comparison, North Island merchant spending was up 6.7% against the equivalent 2019 period.
  • New Zealand Post released its latest e-commerce spotlight, which highlighted the strong growth in online retail in New Zealand and associated need for courier services. New Zealand’s online spending in the first quarter of 2021 was reported at $1.47bn, up 27% on the same quarter in 2020 and up nearly 50% on the equivalent period in 2019.
  • Homeware and sporting goods retailer Briscoes released its first quarter results for the calendar year. Its reported sales of $173.1m compared to $97m recorded in the first quarter of 2020 (impacted by 33 days of store closures due to COVID-19) and $150.6m in the first quarter of 2019. In an NZX trading update, managing director and principal shareholder Rod Duke indicated: “Gross margin has also continued to be strong for the group, delivering ahead of expectations". 
  • Auckland-based online meal kit company, My Food Bag announced its first results as a listed company, beating prospectus forecasts with annual revenue to 31 March up 24% to 190.7m (exceeding the prospectus forecast of $189.5m by $1.2m), with underlying EBITDA increasing to $29.0m (up 78% on FY20). The company also reaffirmed its FY22 revenue and EBITDA forecasts of $186.4m and $32.4m, respectively. 

Recent deals - recent announced transactions in the retail and consumer sector include: 

May: 

  • Following a trading halt on 21 May, The Warehouse Group Limited (WHS) announced that Foodstuffs had divested its entire shareholding in WHS to New Zealand institutional and retail investors.
  • KKR completed the acquisition of premium pet food producer Natural Pet Food Group Limited7.

April: 

  • Naked Brands Group announced the divestiture of Auckland based lingerie chain Bendon
  • Asahi Group completed the acquisition of New Zealand coffee. roaster and RTD producer Allpress Espresso7.
  • Just Life Group announced the acquisition of About Health - a leading provider of natural health supplements.

March: 

  • My Food Bag Group Limited7 completed its initial public offering.
  • Singapore's Olam International disclosed the sale of its 15.2% stake in Open Country Dairy to Talleys Group.

References
7  Advised by PwC New Zealand

PwC Retail and Consumer Dashboard: 

We update our dashboard monthly with the latest data on electronic spending, consumer sentiment and Auckland pedestrian analysis. Through our dashboard we identify and analyse trends over time, particularly in the aftermath of the COVID-19 lockdowns.  If you are interested in online access to our dashboard to help inform your decision making, please contact: Rebecca Matthews 


How we can help:

PwC has advised many of New Zealand’s largest listed and privately owned retailers across a wide variety of projects and roles, including assurance, tax, capital solutions, transactions services, M&A, restructuring, real estate, supply chain and digital consulting services. 

We have a comprehensive understanding of the rapidly evolving retail 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 sector, based on principles of trust, independence and challenging insight, using specialist teams tailored to specific client needs. 

Contact us

Jeff Blue

Jeff Blue

Executive Director, PwC New Zealand

Tel: +64 21 892 758

Mike Bignell

Mike Bignell

Partner, PwC New Zealand

Tel: +64 21 730 855

Indy Sena

Indy Sena

Partner, PwC New Zealand

Tel: +64 21 382 696

Greg Doone

Greg Doone

Partner, PwC New Zealand

Tel: +64 21 863 396

Peter  Chambers

Peter Chambers

Partner, PwC New Zealand

Tel: +64 21 404 015

John Schellekens

John Schellekens

Partner, PwC New Zealand

Tel: +64 27 489 9541

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