The country's small businesses saw sales plummet 8.3% in June compared with June 2023. It was the largest monthly year-on-year fall since May 2020 during the pandemic lockdown.
Global small business platform Xero has released its Xero Small Business Insights data for the June quarter, which show that small business sales fell 1.5% year-on-year across the June quarter. (The methodology behind the insights data can be viewed here).
But in common with other high frequency data released recently, the Xero figures are showing June in particular to have been a very difficult month for Kiwi businesses. And while GDP figures for the June quarter will not be released till September 19, economists are already expecting that the figures will show the economy to have contracted during the quarter.
According to the Xero data, the sectors hardest hit in June were hospitality down 10%, construction down 10% and retail trade down 11.4% compared with the same month in 2023.
Xero's NZ head of sales Paul Churchman said 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".
"After what looked to be a more positive start to 2024, this sharp decline in sales suggests small businesses are not faring so well," Churchman said.
He said all industries experienced a sales decline in June, while across the quarter, only two recorded positive sales growth - real estate (+0.9% y/y) and other services (+0.1% y/y).
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 as a whole, 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 with 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%).
Xero says its product is now available in more than 180 countries, with over 4.2 million subscribers. As per Xero's financial results for the year to March 2024 the company had over 600,000 subscribers in NZ.
Xero says that for its business insights sales data is drawn from businesses who use Xero’s invoicing platform to issue invoices (including via apps linked to a Xero account) to customers.
"We measure sales growth based on the face value of invoices issued by firms within each month," Xero says.
"We also apply a number of filters to both the sample of invoices and the sample of firms to achieve a high quality sample of small businesses which we analyse and draw our insights from. In particular: we exclude trusts, clubs & societies, and other unclassified organizations; and we restrict to small businesses by excluding firms who recorded annual sales greater than each country’s small business revenue threshold."
Despite the latest fall in sales figures, the latest Xero data shows that small businesses are still attracting staff, with jobs rising 6.7% y/y over the June quarter, slightly below the 7.0% rise in the March quarter.
"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," Churchman said.
"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."
Churchman said the latest 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."
79 Comments
They have put prices up to a level that covers their costs. Like many seasonal businesses they rely on revolving credit, which is prohibitively expensive thanks to our clueless ass-about-face approach to tackling inflation. Here's what Stats NZ commented on the March data (it's got worse since):
Interest paid increased by a further 2.2 percent to $7.2 billion in the March 2024 quarter. Interest expenses make up 28 percent of income payable in the latest quarter, and 14 percent in the September 2021 quarter when interest paid was at its lowest level in the series ($3.0 billion).
Businesses have taken on more debt and reduced their inventories to fund the difference between income and outgoings. The last year has seen three of the four highest quarters in the series for new borrowing, with $18.4 billion of new borrowing in the year ended March 2024. Over the same period, net inventories declined $5.2 billion reflecting businesses using or selling inventories without fully replacing stocks.
The RBNZ need to hike at the next meeting to kill of the debt culture once and for all.
The transition has started, if you are a saver you are being handsomely rewarded. Yes, it will not be a pain-free transition but in the long run we will all be better off for having done it. We are well on the path to creating some slack in the economy and the work will come again as prices adjust down.
This is the way to ensure our young have a chance to buy a house in NZ the way we did. I am actually going full bore on a renovation right now as my builder has no work and literally halved his cost - so now I'm bringing forward a lot of work as a result.
I think there is a lot of factors going into their particular case, what you mentioned above is definitely a contributing factor but I think there's some other drivers. I'm not sure how Cardrona and Treble are doing but I doubt it's much busier than Remarks/Coronet.
Setting the price too high on season passes to the point they have lost a lot of their local season pass holders. I know like 10 people here who previously bought season passes every year that have decided it's not worth it. The day pass rate isn't actually that much higher than it has been in the past, but it's still higher than people can afford unless they are really into it.
Snows been shit. So not really worth going up.
Other options like Japan are both better and cheaper. I know heaps of people who usually ski in NZ who have gone to Japan instead since the yen has been so low, and their snow and resorts are way better than what we have got I have heard.
And it was way too busy in previous years which has put people off going again this year, I guess raising prices helps with this but it's a delicate balance and they might have overshot their mark. It would be really interesting to see if the number of season pass holders YOY has declined significantly.
However this is all anecdotal so take it with a grain of salt.
I agree, I can remember early bird season passes at $699 like 3 years ago, what this year was $999...
They also changed the pass protection policy in 2022 which really annoyed me. Previously, you could get a refund with no questions asked if you didn't use your pass. Now, refunds are only available in case of injury or other extenuating circumstances.
This makes a season pass much riskier, as there are many reasons you might not be able to use it. People who might have bought a pass and used it a few times a year will now likely avoid buying one altogether. Combining decisions like that along with constantly raising prices is a good way to piss off your core audience who were there with you through thick and thin.
Agreed, Jfoe.
If the RBNZ was serious about inflation they would have started the easing cycle ages ago.
But no. Instead they seem to believe adding cost into the system with excessively high interest rates is the answer.
And, from the comments, it appears they are well supported in this foolishness.
My guess is that much of this foolishness is driven by selfish, self interest from those looking for returns on their term deposits (of which there is a sizable number). Many Kiwis aren't that bright. "Investment" to far too many means either term deposits or buy a rental. The idea that NZ Inc needs real investment into productive assets is either too hard, a mystery, or they're too lazy to be bothered.
Consider the impacts of what the RBNZ are doing and the intentions are pretty clear ....a redirection of labour resources and capital (force a reevaluation of future capital gains in RE) into productive activity, exactly what you are calling for....the question is whether or not the medicine will kill the patient, which given the starting point and the time factor is quite probable.
Ayup. The status quo has been a debt fuelled jobs and consumption program that's not been servicing us for nigh on decades now. It's the first to go when money gets tight. Actual productivity is usually profitable enough to cover higher interest rates, when money is cheap, we get all sorts of very marginal commercial undertakings. Hell, even our decent established companies are likely over capitalising in some fairly spurious undertakings, just because money is cheap. Lets refresh our vehicle fleet and office area every 3-5 years.
I can see why so many want it back, but it's a road leading ultimately to no-where.
People sure have fun imagining new forms of square pegs to fit into round holes though. "Give us more cheap money and this time we'll use it for something productive, honest!".
Well said Pa1nter.
The problem was the stupidly low credit created an unsustainable economy.
The problem now (we cant have low credit ) is that everyone wants low credit.
The clue is in the word unsustainable .
The sooner we remember (or learn) how to make money in the new environment. The better.
Yes kpeping the ocr hfl will damage the parts of the economy that relied on cheap credit. It will cause pain to many. But it has to happen.
Anecdotal again, but I've heard they're apparently down 60% year-over-year. It's definitely the quietest I have ever seen it.
Last year had poor snow as well, but the crowds still came. 2021 was also pretty average and during COVID, yet it was busier than now. The lack of snow is definitely a factor, but I think there are other contributing forces at play here too beyond the mediocre snow coverage.
I was speaking to the small local sign writer the other day. In the last 2 months ten of her customers had shut down, and she was on the verge of closing the doors herself.
I also notice the bills for the kids' extracurricular activities are arriving earlier with stricter payment dates.
Yield curve still inverted. It’s possible (perhaps probable) that the worst of this recession is still 6-12 months away.
So if people think now is bad…it may yet (or it will probably) get worse in terms of unemployment, business failure, mortgagee sales, falling asset prices.
Once the yield curve has normalised, then 12 month after that we can start talking about a ‘recovery’/good time to invest/good time to buy a business/good time to buy your first home.
H1 26 will be the time for FHBers to think about buying property if this plays out normally, exceptions are to buy next 12 months at mortgagee auctions or forced sales.
All bets are off if a global recession rolls in.
Re comment about cuts, yes many took on debt in covid that they should not have.... we are now paying for that debt.... much will be written off via liquidation imho
Data I’m looking at for the US looks as though they are almost certainly a heading into recession with a sharemarket that has 1929/2000 type euphoria. As you say, anything could happen.
Yes agree if a FHB I’d sit tight for 12 months and just try and keep your job.
I never grew my business headcount-wise (it's just me, and a couple of sub-contractors I call upon for specific project-basis support). Work from home, outside of paying myself the biggest expense is probably airfares for client visits but these are clawed back through my invoices - although with Air NZ prices starting to look at moving over to the Jetstar dark side.
As you say, no big expenses like commercial rent or whopper payroll. I recently caught up with an old colleague who's in the same line of work but built his firm to about 40 headcount with offices in Chch and Auckland. He does well, but was pretty open about how stressful it is and how he wishes he had just kept it leaner and meaner ... he makes Joe Biden look like a spring chicken and he's only in his early 40s so still a young man really.
The problem being that each and every month there's literally hundreds of thousands of dollars in outgoings that have to be covered for payroll, office lease, equipment etc. It doesn't take much in the way of clients dropping services, downgrading, or flat out not paying to cause massive problems.
On the other hand (and I hope it doesn't come to this) I've run the numbers and at a 75% loss of revenue I'd still be able to pay myself enough out of the business to cover all the household bills, and then my wife's income would be the saving/investing/fun money.
Or...bad luck, you geared up on rentals and it ain't working out.
That said, I feel terrible for the young folk I know who were suckered in by MSM, banks, RE agents and even politicians to the notion that property always goes up. A shameful period of behaviour by so many.
I still recall the comment of JK that rising house prices were a god thing. Then he knights himself. That's how bad the behaviour was.
One phenomenon I'm observing across a few client businesses is the extent to which the weakening economy is "highlighting" fundamental deficiencies in business processes and internal skills, particularly with respect to sales.
I'm working with several businesses where during Covid/post-Covid 'boom time' the orders flowed in so thick and so fast that existing salespeople became lazy order takers, and new sales hires never had to do much selling (once again just order takers). Basically as long as you had a pulse and could complete the paperwork you were golden.
What's happening in these businesses now is there is often still a decent inflow of leads to the pipeline (one of my largest clients, they are roughly 30% ahead of target in terms of new sales opportunities despite a weakening market) but the salespeople are struggling to convert as they've forgotten - or never knew - an environment where you have to fight for the business, be proactive in follow up, negotiate hard with the customer but also management to get a good enough deal for the customer to go ahead with, and so on.
For example we did some analysis and found about half of the sales team wouldn't do anything more than an initial follow up email to a lead - no calls, no second emails, anything like that. In a rather tense meeting they all said 'well we haven't needed to do it for so long as the products just sold themselves'. Because this business was the go-to supplier in a hot market if you wanted the product in a reasonable time frame (competitors having massively longer lead times) and now the tables have turned.
I've heard similar feedback from businesses in sectors like the motor trade, where salespeople enjoyed a period of time in which the cars just sold themselves and customers were happy to buy at almost any price as long as stock could be secured.
Obviously there are bigger economic factors at play, but I think a lot of businesses haven't been helping themselves either!
That's where you are both quite wrong.
McDonalds is more of a real estate company than a fast food company. So anyone with a few clues will be following where they buy.
Real estate is the hidden driver of profitability, the company owns the land and buildings and leases them out. Between the burgers and the land, McDonalds makes a lot more of its money on the land.
So following where McDonalds buys is a pretty good barometer of future local real estate prices. Something that's gone right over your heads.
Many years ago I contacted McDonalds and offered to stump up the money to build and operate one in Orewa, but they told me they intended to do it all themselves.
Doesn't mean Jack, there used to be a McDonalds in Browns Bay, it ended up closing. I really wouldn't use a fast food outlet to judge the success of an area, especially an area that's not even built yet. Sure the place may happen eventually, probably not in my lifetime.
It does mean Jack......McDonald's gross profit for the quarter ending March 31, 2024 was $3.439B, a 3.77% increase year-over-year.
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Sonneborn quoted ‘we are not technically in the food business. We are in the real estate business. The only reason we sell fifteen-cent hamburgers is because they are the greatest producer of revenue, from which our tenants can pay us our rent.’
Some people are still spending for sure. Builder friend just signed up a 2m reno on a 4m house. Obviously top end. Without this windfall he was dead in the water work wise. If you aren't in this market with the cashed up 1%ers you are in the hurt locker.
In my own business I've been doing lots of what if scenarios, break evens, cashflows. It is very dire out there. We are down 12% yoy. Costs are up, margins squeezed.
Govts about to get squeezed on the tax take, acct is reworking prov payments, roughly 25% of what we paid last year.
Because most people are running the same model. There's just slightly different window dressing and rules.
If someone was making the move, they should be incorporating lifestyle changes along with geographic.
I could say go to Germany. They're desperate for migrant workers and the pay is pretty high. But, accomodation is also expensive, as is a lot of the food. Maybe you'd be 10s of thousands a year better off, but it's really just a variation on the same theme.
You really want to go somewhere where your living expenses are 1/5th what they are in NZ, and find some way to earn part of a Western income there.
Instead, it's more often Australia. Keepin' it Anglo-Saxon.
RBNZ to the NZ economy:
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