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An analysis of retail sector in New Zealand

New Zealand is a geographically small nation with an area of 268,021 square kilometres and a total population of 4.6 million. It is a sparsely populated country with a population density of 17 persons per square kilometre. The population of New Zealand has increased at a small CAGR of 1.1% from 3.73 million (1996) to 4.6 million (2016).

Although it is sparsely populated, it is a high-income economy with nominal GDP per capita USD 36,254. The consumer spending as a percentage of GDP has always been in the range of 58 to 60% for the past 20 years. The gross adjusted per capita personal disposable income of New Zealand increased from USD 14,134 (1998) to 25,432 (2013) as shown beneath. This resulted in an increase in consumerism and retail sales in New Zealand. Televisory analysed the retail sector in the nation, which grew at a CAGR of 3.4% from USD 31.15 billion (2008) to USD 40.75 billion (2016) as can be seen below. Moreover, the beautiful landscapes of New Zealand attract a large number of visitors. However, the population rose by less than 1 million in last 20 years, there has been a growing influx of tourists in the country. In 2008, 2.37 million tourists visited New Zealand (55.7% of its population) and 2.77 million tourists visited in 2014 (61.5% of the population of the nation). The retail sales in New Zealand are largely dependent on tourists and recently New Zealand has become an attractive market for retailers as a result of growing influx of affluent migrants. The tourist arrivals as a percentage of the population are shown in the below graph. The country has a significantly higher visitor’s population as a percentage of native people and as compared to other countries. 

New Zealand is an urbanised nation and the share of retail outlets strongly correlates positively with the distribution of the population. The 5 major cities Auckland, Wellington, Waikato, Canterbury and Otago account for nearly 72% of country’s retail outlets. Consequently, Auckland has the highest retail store density and hold more than one-third of the retail outlets in New Zealand. Furthermore, the nation has a large number of independent mom and pop stores and retail chains. Organised retail chains have come up to compete with the independent mom and pop stores. In New Zealand, most of the local retail chains are private companies. Grocery retailers and supermarkets account for the largest proportion of retail sales (approx. 37%). However, most of the grocery retailers and supermarkets are an independent mom and pop shops. The market for supermarket retail chains is duopolistic and is controlled by the Foodstuffs Limited (the largest) and Progressive Enterprises (the second largest). These two companies together enjoy around 50% of grocery retail market share in New Zealand. The next major share of retail sales (approx. 10%) is contributed by department stores. The major department store chains in New Zealand include Arthur Barnett Ltd., Ballantynes, DIC, Deka, Farmers Trading Company, H&J Smiths and Warehouse Group, most of which are private players. In addition, other retail sectors that witnessed a higher growth in the store count in the past decade are motorcycle retailing, clothing retailing, sportswear and camping retailing.

Strategic external analysis of the retail sector in New Zealand:

  1. Power of suppliers: In the retail sector, the suppliers have a higher power over retailers as there are multiple retailers. The retail market in New Zealand is no exception.
  2. Power of customers: There are many independent mom and pop stores in New Zealand and hence the customers have options in form of retailers, who offer lower prices.
  3. Barriers to entry: New Zealand is a free market economy. The Australian based companies ventured into the market such as the Baby Bunting Group, the Australian children’s clothing retailer and the David Jones. Moreover, apparel retailers and luxury brand retailers such as H&M, Zara and Tiffany ventured in 2016. These companies saw a potential in New Zealand’s market from the growth of affluent migrants and tourists. Additionally, few of the international retail chains are bigger than the entire New Zealand retail market and they may pose a serious threat to the regional retail chains and independent retailers in the country.
  4. Presence of competition: There are still few organised retail chains in New Zealand. The market in several retail sectors is duopolistic to oligopolistic. The competition among organised retailers is low but they do face competition from the independent mom and pop stores. The competition will gradually scale up as international players entered the market in 2016.
  5. Threat of substitutes: Online shopping is now gaining momentum in New Zealand. However, there are still less pure play online retailers. The two main pure-play online retailers are New Zealand based Trade Me Group and the global e-commerce giant Amazon. The major retail chains have their own online sales channels. There is however not much threat to the brick and mortar stores from the rise of e-commerce as tourists would tend to shop in brick and mortar stores.

The retail sector in New Zealand is growing as a result of increasing per capita income, rising number of tourists and increasing influx of migrants. Further, a fall in tourist arrivals may affect the retailers of New Zealand. Though the grocery retail and supermarket sector contribute most to the total retail sales, the growth in the retail sector is contributed by other retail sectors such as sport and camping retail, apparel retail and vehicle retail. The regional retailers are expected to face increasing competition from international entrants in the near future. E-commerce will continue and is expected to increase but it is likely to pose relatively weak threat to the brick and mortar stores in relation to other countries.

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