Business failures continue increasing with the wholesale trade sector being particularly hard hit, credit bureau Centrix says.
Centrix's latest monthly Credit Indicator report, for November, notes company liquidations across New Zealand increased 27% year-on-year, rising across most regions. And business credit defaults are up 16%, on average, year-on-year as they were last month.
In the wholesale trade sector liquidations rose 82% year-on-year, to 89 from 49, Centrix says.
Of those 89 liquidations, 23 were in the machinery and equipment wholesaling sector, 20 were in each of the grocery, liquor and tobacco product wholesaling sector and the furniture, floor coverings and other goods wholesaling sector, with eight in the motor vehicle and motor vehicle parts wholesaling sector.
A further five came in the commission-based wholesaling sector, four in timber and hardware goods wholesaling, three in both the textile, clothing and footwear wholesaling and agricultural product wholesaling sectors, two in mineral, metal and chemical wholesaling, and one in pharmaceutical and toiletry goods wholesaling.
"Company liquidations are up 82% year-on-year for the wholesale trade sector, which represents nearly 3% of all registered companies in New Zealand, indicating the industry is still facing challenges with lower demand across the economy," Centrix says.
"In particular, grocery, machinery and equipment, motor vehicle and furniture wholesaling businesses have seen a significant rise in insolvencies in recent months."
Centrix says business credit defaults are up across the board, with the average default amount rising to almost $8,000. (See chart below). The worst affected sectors include the construction and transport sectors, with credit defaults up 38% and 35%, respectively.
Company liquidations across the country rose 27% year-on-year, rising in most regions, the Centrix data shows. (See chart below). However, October saw 223 liquidations, down from 306 in September, which was the highest monthly total for a decade.
"In the third quarter of 2024, there were 355 company liquidations in Auckland, up 41% year-on-year, 218 in the rest of the North Island, up 51% year-on-year, and 134 in the South Island, up 14% year-on-year. Residential building construction, property operators and cafes/takeaway food companies have been the most likely to be placed in liquidation during the last year," says Centrix.
9 Comments
It may be that in a market of our size, the days of wholesaling in some markets are numbered.
The value that can be added by holding local stock is countervailed by small sales volumes and associated high prices, and the need for local support.
For smaller items such as, say, tech products, a smart model would be vertical integration for a seller to bring the wholesaling in-house, but that means wholesale supply of products to a broad range of vendors would likely be restricted, pushing more retailers out of the market and restricting access.
A really smart seller would be leveraging their volumes with the Australian or Singaporean market, run warehousing and technical support from there and hold only maintenance and repairs spares here.
However, looking at the insolvency numbers, those kind of sectors are largely absent, which suggests they have gotten that message, and that big firms are doing it: look at retailers like Kmart, who seem to do it very successfully.
It may well be that sellers of commodity products - like building materials - are going to have to dis-intermediate to survive and cut entire links from the supply chain to bring our prices down to something that isn't applying drag to the economy.
As a thought experiment: why do you need a large bricks and mortar store to sell things like plasterboard, plywood, screws, gauged timber and cement? However: that would require planning ahead on the part of the building trades, which is another whole world of hurt as you try to replace the expensive I'll-just-nip-down-to-the-hardware-store for forgotten things, and the costs of warehousing product with the builders would accrue. In some cases it's hard to see how to win.
An interesting point in the Herald yesterday was that a lot of liquidations are now driven by Inland Revenue, historically it was other businesses. Often businesses close owing IRD big sums of money so it's good that IRD is getting in sooner rather than later for all creditors concerned.
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