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Retail country in focus: New Zealand

In the coming months the new-look UK government will be looking to build commercial relationships with countries around the world, as it faces up to the new foreign policy challenges in the wake of last month's vote by the British public to leave the European Union (EU).

New Zealand was one of the countries quick to offer the UK the opportunity for trade support in the immediate aftermath of the EU referendum result.

Under new Prime Minister, Theresa May, the UK government is looking to increase its number of trade negotiators, many of whom work for the EU, and New Zealand has not ruled out loaning staff to the UK as it starts this process in earnest. It comes at a time when the Southern Hemisphere nation's stock is high.

World Bank Group lists national economies on their ease of doing business, with the highest ranked deemed to have a regulatory environment more conducive to starting and operating a local firm. In the latest standings, New Zealand is ranked first out of 189 countries for ease of starting a new business and second for ease of conducting business with.

A number of technology companies originating from New Zealand have started making a play in the European business world in recent years, including in retail, so it is against this backdrop Essential Retail opted to look at the retail tech and wider retail landscape in the country.

Background

Euromonitor International research shows that the New Zealand retail market grew in 2015, with the continued economic recovery contributing to increasing confidence among consumers and businesses alike. Employment levels rose and inflation was kept in check.

Foodstuffs, which owns brands such as Pak 'n' Save and New World, and Progressive Enterprises, which runs the Countdown supermarket chain, are the two largest grocery groups in the country, but it is the smaller, independent retail scene where the focus of attention has been, in recent times.

According to Euromonitor there was a healthy appetite, in 2015, for New Zealanders to buy local goods, but the growing momentum behind internet retailing has led to a rise in popularity of international brands – with many luring in customers via the promise of free shopping. In addition, the local retail industry is running an ongoing lobbying programme, calling on the government to impose a goods and services tax (GST) on international companies selling their products across the New Zealand border.

From October, purchasing digital services such as Netflix, Apple iTunes and Amazon eBooks will have GST attached, but retail trade bodies and the SME retail community in New Zealand are calling on ministers to stretch this levy to companies selling physical goods into the country, claiming global organisations selling into New Zealand have an unfair advantage over local players.

Speaking earlier this month, Scott Fisher, acting CEO of the Retail NZ trade association, said: "The government has announced that it is not taking any immediate action to reduce or remove the de minimis (GST/duty) threshold – the playing field is still not level! 

"This is unacceptable as it makes it hard for many small retailers throughout the country and is disappointing news for all retailers. Online retail is here to stay, and we embrace it for the retail opportunity it presents. However, it’s unacceptable that the government effectively subsidises businesses like Amazon and creates a minimum 15% price disadvantage for Kiwi shopping websites and bricks & mortar stores."

eCommerce rising

Whether it is international trade or domestic trade, there is no argument about the fact online retailing is growing significantly in New Zealand. Figures from Nielsen show that over two million people are now shopping online, with the number of shoppers growing by 4% last year and an additional 77,000 interacting with the world of eCommerce during that time.

Nielsen expects there to be 2.14 million online shoppers by the end of 2016, and the value of the market has jumped by 28% since 2012. Online shopping is reportedly dominated by the five major categories – airline tickets, fashion, entertainment, accommodation and books, but the marketplace, Trade Me, is the top brand for Kiwi online shoppers (44% of online shoppers purchase using this website).

Air New Zealand, The Warehouse, Mighty Ape and GrabOne make up the top five local places for online shopping, but Trade Me really does dominate and with around 777,000 people visiting the site's pages every day it is said to be more popular than the major social networks in the country. The larger international names, Amazon, eBay and Ali Express, see 20% 16% and 14% of the NZ online shopper population purchase on their respective websites.

UK-based Sports Direct, French fashion and homeware chain La Redoute and Target Australia department store are three examples of international companies that operate Trade Me online stores, as a means of reaching a New Zealand audience. The marketplace is looking to increase the number of foreign businesses that operate on its growing website.

Jon Macdonald, CEO of Trade Me, says: "We know Kiwis love to shop online and we want to provide New Zealanders with local access to an increased range of products from global brands on Trade Me.

"It's a great way for international retailers to get in front of Kiwi shoppers without setting up a bricks-and-mortar or grinding away to set up a .co.nz site."

Competition is set to heighten in the months ahead, it would seem, with the not insignificant news that Chinese marketplace Alibaba will be opening an Australian office later in 2016, targeting the Australasia region for further growth in global sales.

The sophisticated technology underpinning Alibaba's operations and renowned customer service could well have an impact on the market in the months ahead.

Talking technology

Technology is a burgeoning business in New Zealand, and with official figures showing a significant rise over the last two years, it is the country's fastest growing export sector and the third largest GDP export overall. This is represented by a flurry of digital-led start-ups cropping up in New Zealand, with some beginning to gain prominence on a global scale – including in retail circles.

Earlier this year, 100 small businesses and advisors headed to the New Zealand High Commission in London to show how cloud technologies are impacting UK retailers and SMEs. New Zealand companies such as Vend, Xero and business intelligence software provider Spotlight Reporting showed how their technology can help smaller organisations compete with the big-boxes and multinationals. 

Xero is a cloud-based accounting software company that now has over half a million subscribers internationally, while Vend is a point of sale (PoS) software provider that offers businesses the systems they require to plug in inventory information, sales and CSR details into one system. Last year Essential Retail interviewed the owner of east London fashion retailer Number Six, Jake Hardy, who has identified Vend as a key component of his operations, customer loyalty and growth strategy.

Recently, both Vend and Xero were among a select group of global business apps chosen to work more closely with tech giant Apple, to help retailers transform their businesses on the iPad. Retailers looking to work with Apple by using the iPad in a corporate environment will therefore automatically be recommended Xero and Vend as suitable software partners – it is a example of two New Zealand start-ups' growing reputation around the world.

It was also announced last week that Xero and Vend have agreed to be the preferred providers of services to each other's customers. As part of the arrangement they will pursue a range of product updates and joint marketing activities, as they go to market in international territories in collaboration.

Vend founder and chief product officer, Vaughan Rowsell, says that from once being considered as "Britain's farm" due to its exporting of lamb and beef, New Zealand is "now home to sophisticated SaaS accounting, payments and PoS systems that also make up a strong app economy". Silicon Valley investors, he said, "recognise something amazing is happening here".

Ben Kepes, a prominent industry analyst and commentator based in New Zealand, told Essential Retail: "Xero really needs to be congratulated for virtually single-handedly creating the awareness of SaaS and cloud-apps in New Zealand.

"Over the past ten years we have seen a huge ecosystem of SaaS players grow – from very well known brands like Xero and Vend to lesser ones like Populate, Timely and Publons. The tech industry generally, and the SaaS industry in particular, are strong in New Zealand. That said, the investment community is looking for a few exits to justify the large amounts of capital that have been poured into the sector of late."

There is a buzz around the New Zealand tech scene at present, underlined by public and private stakeholders working together to establish state-of-the-art technology innovation hubs in the country, such as GridAKL – Auckland Council's innovation precinct at Wynyard Quarter; Enterprise Precinct Innovation Centre in Christchurch; and Tech Hub, which is led by Wellington City Council. However, as the nation's tech companies look to penetrate international markets, it won't be plain sailing.

"Xero and Vend have done a good job of gaining market traction in Australia and New Zealand but have found it more difficult to really get to scale globally," Kepes stated.

"Xero has a good presence now in the UK but is struggling against a very strong incumbent player in the US. This speaks to the realities of executing an arguably undifferentiated business in a large, competitive and well-serviced market."

Outsiders looking in

Some familiar brands among Europeans and Australians have also identified New Zealand's potential for business over the last 18 month, with Arcadia Group's banner fashion chain Topshop opening in Auckland's major commercial thoroughfare, Queen Street, in 2015. The fast fashion player is now eying up further properties elsewhere in the country.

Later this year, rapidly expanding clothing retailers H&M and Zara will be opening up in New Zealand for the first time, with multi-level stores in Auckland scheduled to open before Christmas. These three renowned European fashion businesses are also reportedly keen on adding Wellington shops to their burgeoning international portfolios.

Premium Australian department store chain, David Jones, has chosen New Zealand as the destination for its inaugural international store, and the retailer will be opening its doors to the Wellington public this week (Thursday 28 July). The shop will operate across three floors, providing local consumers with a mix of fashion, beauty, accessories and home items, as well as new-to-the-market brands Tom Ford and Benefit.

Arcadia's international director, Paul Gould, confirmed to Essential Retail that New Zealand has proved to be a successful market for Topshop to date. There appears to be a real thirst for one of the UK's largest fast fashion players in the country, and that has led to the company seeking out further opportunities there.

Commenting on the shop in Auckland, which opened in March last year, he said: "Sales far outstripped initial projections and performance continues to be strong, and as a result of such success our franchise partner is always searching for new sites in Auckland.

"We are delighted to see such an appetite for Topshop in this market, and can confirm that a new store will launch before the end of 2016 in a prime space at Lambton Quay, Wellington, followed by a further store opening in Christchurch the following year."

Vend's founder Rowsell says there is clearly a demand for international brands in New Zealand, with access to these companies increasing in recent years due to the advent of technology and digital retailing platforms. He also identifies opportunities for British brands, irrespective of the country's recent decision to leave the EU.

Reflecting on Topshop and H&M's plans to create a footprint in the country, he said: "This has been partly driven by New Zealand consumers creating the demand for UK brands through online shopping – we're big into UK online stores such as Asos and Net-a-Porter, here.

"Whether the UK is in the EU or not, the world is getting smaller and it's becoming easier and easier to purchase from overseas. The opportunities and access for UK retailers in New Zealand will only continue to grow as shoppers look further overseas for more choice and as technology makes it faster and more convenient to shop globally."

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