The strong retail bubble that has buoyed the economy over the last year could burst when international travel resumes, warns a retail expert.
First Retail Group managing director Chris Wilkinson said the launch of quarantine-free travel between Australia and New Zealand could result in people switching part of their spending to overseas travel rather than saving it for home appliances, furniture and hardware.
That could have a significant impact on spending figures, he said.
“Travel is essentially the retail sector’s greatest competition,” he said.
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At the moment, retail was benefiting from the closed border, he said.
Wilkinson said over the last year people had reallocated spending that they would normally put into those big trips, into doing up their homes.
“Normally, when people travel they have time and money to spend on themselves. That means they are buying apparel, buying cosmetics, they are buying electronics and treats. All of this escape spending is now captive spend. This is one of the reasons retail is quite strong. There’s limited choice.”
But Briscoe Group managing director Rod Duke said a limited trans-Tasman bubble was unlikely to cause a significant shift in spending as shoppers continued to invest in their homes.
“For me, it is just wait and see,” he said.
“When the bubble does open it may take a little from that new pie that we’ve got but Europe and those big destinations will be the key.”
There was still plenty of money out there and plenty of interest in real estate, he said.
Over the last year, spending on durable goods has been robust.
While overall gross domestic product dipped in the last quarter, electronic card spending on furniture, electrical, and hardware categories was up $104 million (17 per cent) in January, compared with the same month in 2020, according to Stats NZ.
Wilkinson said foreign tourists were unlikely to make up the loss of domestic spending.
“If we do see that bubble return, yes, we are likely to get those Australian tourists back in, but their spending is different. For most of the country this is a fairly dilute proposition,” he said.
Even spending in duty free could be muted, because it was typically dominated by Asian visitors, he said.
ASB senior economist Mark Smith said
the timing of the bubble coincided with the winter months, when more New Zealanders traditionally went overseas than travellers arrived here, he said.
“A lot of that spending that we have seen of late has been focused domestically. Kiwis can’t go overseas, so they have been buying locally. So the source of that will go.”
What consumers bought would also change, he said.
“People have been buying up large in terms of consumer durables because there is no other use for the money at the moment. With the opening up of the bubble, that will detract from that to some extent.”
Smith said the arrival of Australians was welcome, but it was unlikely that they would offset the loss of domestic spending.
If the bubble expanded to include other countries, the picture could change, Smith said.
“If you look at the summer months, the key arrivals are really China. Their absence has been felt in retailing so the more the bubble is opened, the better,” he said.
“But again, people will be going out as well.”
Retail NZ’s latest sales index showed the average daily spend per site in March was up 29 per cent compared to a year earlier, when the country went into level 4 lockdown.
But 42 per cent of retailers did not hit their sales targets for the quarter and more than two-thirds of Auckland retailers failed to perform.