Article 7.8:
Retail trade(1)
ANZSIC Division G
Coverage
ANZSIC division G includes all units mainly engaged in the resale of new or used goods, such as personal and household goods, motor vehicles and food, to final consumers for personal or household consumption. It also includes selected repair activities such as the repair of household equipment and motor vehicles.
Overview
The majority of businesses in the retail trade sector have a March balance date.
On 1 July 1996, the first round of tax cuts took effect. This increased the total amount of disposable income available nationally, and could have been expected to encourage consumers to purchase larger items like appliances and cars. However, anecdotal evidence suggested consumers spent in anticipation of the tax cuts, rather than waiting until they actually had the money in their hand. Certainly retail sales figures showed that there had been some additional spending in the early part of 1996. Increases in the average base lending and first home mortgage interest rates between the March 1996 and March 1997 years may have restrained spending to some degree. These rates rose 1.7 percent and 1.2 percent respectively. The amount of disposable income available for spending in the retail sector was probably also affected by increases in spending on activities like gambling, movie and concert attendance and other entertainment services. "Telebingo" began in July 1996.
In late 1996 New Zealand's first MMP election and a two-month delay in the forming of the Coalition Government contributed to some economic uncertainty, which impacted on consumer and business confidence. According to the National Bank of New Zealand's Survey of Business Opinion, reported in "Business Outlook", a net 24 percent of respondents to the March 1996 survey expected general business conditions to improve. However, a year later just 6 percent of respondents expected things to get better.
Between the March 1996 and March 1997 years there was a 7.6 percent rise in the number of short-term visitors to New Zealand while the growth rate for short-term departures of New Zealand residents was almost double this. This net outflow of short-term visitors contributed to a difficult time for the local hospitality sector. The Mount Ruapehu volcanic eruptions in mid-1996 may have impacted on the tourist industry. The annual growth rate in short-term visitor arrivals for the March 1997 year was one of the smallest recorded since 1992.
Food retailing sales tend to track food price changes. The Food Price Index showed an average annual growth rate in food prices of 2.1 percent between the March 1996 and March 1997 years.
The number of building consents issued in the year to 31 March 1997 was 5.5 percent higher compared with the previous March year. This is likely to have had an impact on sales of hardware and household goods such as furniture, floorcoverings and appliances.
Total new car registrations, including imports, fell 12.2 percent between the March 1996 and March 1997 years while imports of used passenger motor cars grew 18.6 percent over the same period. The growth in motor vehicle imports probably reflects the shift towards imported Japanese used cars. Since it is cheaper to import vehicles than assemble them in New Zealand, consumers gained as retail prices also fell. This is reflected in the Car Price Index component of the Consumers Price Index, which fell 6.1 percent between the March 1996 and March 1997 quarters.
Commentary
Annual Enterprise Survey (AES) results show that sales accounted for over 99 percent of total income in the retail sector in both years. Retail sales fell 0.6 percent between the 1996 and 1997 years, with a similar-sized fall in expenditure. This contrasts with a 1.9 percent increase in sales between the March 1996 and March 1997 years, as recorded by the Retail Trade Survey (RTS). The RTS population is retailing (ANZSIC division G) plus accommodation, cafes and restaurants (ANZSIC division H) and personal and household services (ANZSIC subdivision Q95). However, even when the sales for the personal and household services; cafes, restaurants and accommodation; and accommodation, hotels and liquor storetypes are excluded sales still showed growth of 1.2 percent.
Both of these movements are within sampling error. The 95 percent confidence intervals for the AES and RTS movements overlap, meaning the apparent difference in the results is not statistically significant.
AES results for the 1997 year cover balance dates between 1 October 1996 and 31 March 1997, while March 1997 year retail figures include all sales in the period 1 April 1996 to 31 March 1997. While over 90 percent of AES respondents balance in March, their sales account for less than 60 percent of total sales. This may be contributing to the discrepancy in sales movements. Less than half of supermarket and department store sales are based on March balance dates.
The retail trade figures closely reflect GST sales data for ANZSIC division G, which increased almost 2 percent between the March 1996 and March 1997 years.
Although there is not a perfect correlation between the RTS storetypes and the four AES retail subsectors, a rough comparison can be done of sales at a finer level. AES sales for restaurants and hotels recorded an increase of 7.1 percent, which was a little higher than the corresponding movement of 5.0 percent from the RTS. In the automotive industry, AES sales decreased 3.3 percent while RTS sales were 0.9 percent lower. The RTS movement combines a 4.5 fall in sales for the motor vehicle retailing storetype with 4.2 percent growth in sales for the motor vehicle services storetype. AES non-durable sales showed a 1.3 percent increase, with the corresponding RTS movement being close at 1.9 percent. AES durable sales showed a 3.6 percent increase, with the RTS movement very close at 3.8 percent.
Salaries and wages increased 2.7 percent in the 1997 year. This is consistent with the 2.8 percent growth in full-time equivalent persons engaged between February 1996 and February 1997, as recorded by Statistics New Zealand's Business Demographic Statistics. The number of retail outlets remained fairly static between 1996 and 1997. However, the number of specialised retailers is generally declining at the expense of larger shops which sell a wide range of goods. This is particularly evident in areas like fruit and vegetable retailing, clothing and footwear retailing, stationery retailing and jewellery retailing.
Closing stock levels were 4.4 percent lower for the 1997 year, probably reflecting the increased use of more advanced inventory management techniques by many retailers.
A reduced return on total assets and a lower profit margin on sales reflect the tough trading conditions experienced by retailers during the 1996/97 year. Profitability in the retail sector fell almost 10 percent. However, this compares favourably with profitability across all industries combined, which fell by 18.5 percent.
(1) This article was written by Anne Holwell, Business Statistics division.
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