Xero report: Kiwi small businesses experience their largest sales decline since May 2020:
Xero, the global small business platform, has released its Xero Small Business Insights data for the June quarter, revealing a decline in small business sales in Aotearoa, while jobs and wage growth remain strong.
Sales fell by 1.5% year-on-year (y/y) in the June quarter, experiencing a decline for two consecutive months in May (-2.4% y/y) and June (-8.3% y/y). This marks the largest monthly fall since May 2020, when the entire country was in the first COVID-19 lockdown.
Paul Churchman, Xero NZ Head of Sales, expressed concern about the declining sales growth, stating that it indicates small businesses are under pressure from the country’s turbulent economy.
“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.
The latest inflation figure from Statistics New Zealand was 3.3% for the June quarter. When adjusting the nominal XSBI data to real data, it indicates that small business sales are even weaker, down 4.8% in the June quarter.
In June, all industries experienced a sales decline. Across the quarter, only two industries recorded positive sales growth: real estate (+0.9% y/y) and other services (+0.1% y/y). The largest quarterly declines were seen in hospitality (-3.7% y/y), construction (-3.4% y/y), and retail trade (-3.3% y/y). These sectors were hit hardest in June, with hospitality down 10%, construction 10%, and retail trade 11.4%.
“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,” Churchman noted.
All regions tracked recorded a decline in sales in 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, the only region with a rise was Northland (+1.5% y/y), while the largest falls were in Waikato (-4.7% y/y) and Taranaki (-2.6% y/y).
Compared to 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% y/y).
Small Businesses Still Attracting Staff Despite Financial Strain
Jobs rose by 6.7% y/y over the June quarter, slightly below the 7.0% rise in the March quarter. For the past 18 months, job growth has been gradually slowing after peaking at 9.0% y/y in the March quarter of 2023. Nevertheless, it remains well above the pre-pandemic average of 3.0% y/y.
“This steady job 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,” said Churchman.
“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 labor management won’t be sustainable long term if sales continue to decline.”
Not all industries are experiencing job growth as quickly as the national result, with hospitality (+3.0% y/y) and agriculture (+4.7% y/y) having the smallest increases in jobs during the June quarter. Meanwhile, professional services (+7.4% y/y) and other services (+10.2% y/y) had gains above the national average.
Job growth varied across regions, with the largest quarterly gains in Hawke’s Bay (9.7% y/y) and Waikato (+7.6% y/y). Manawatu-Whanganui (+5.4% y/y) and Auckland (+5.9% y/y) had the smallest rises, although both are still strong by historical standards.
Wages Grow Across the Quarter
Small business wages grew 3.6% y/y in the June quarter, the largest rise since the March quarter of 2023.
“While labor market tightness has eased slightly in the past year, this acceleration of wage growth suggests small businesses remain eager, and are currently able, to pay larger wages to attract talent. This likely comes back to small businesses wanting to be primed for when conditions improve, with many having been impacted by the post-pandemic skill shortages. However, paired with continued job growth, this raises the question of how long small businesses will be able to sustain this trend if sales don’t pick up,” Churchman said.
Construction (+4.1% y/y) and other services (+3.8% y/y) offered wages above the national average in the latest quarter, while the smallest wage rises were in agriculture (+2.9% y/y).
Crucial for Small Businesses to Know Their Numbers
“This data reflects 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 on top of their finances and consider working closely with a financial advisor. Not only will this help them make informed decisions about their business, but it will also help them understand how their business is positioned and navigate the challenging road ahead,” Churchman concluded.
