Xero says small business sales are inconsistent across New Zealand, with some regions facing more challenging times than others

The country's small businesses had their first year-on-year monthly drop in sales last month since the Auckland Covid lockdown in 2021, according to Xero.

Releasing its quarterly Small Business Index, Xero said sales fell 1.5% year-on-year (y/y) in September 2023, while in the September quarter overall sales growth averaged 0.7% y/y, down from the average of 4.3% y/y in the first half of 2023. Xero provides a cloud-based accounting software service for small businesses and their advisors. (The methodology of Xero's index is here.)

Xero NZ country manager Bridget Snelling said sales are inconsistent across New Zealand, with some regions facing more challenging times than others.

"Customers don’t have much leftover to spend buying from small businesses once they’ve covered household and utility expenses, and it’s clear this is having a real impact on sales."

By region, the weakest average sales growth in the September 2023 quarter was in Taranaki (-3.9% y/y), Waikato (-2.3% y/y), and Manawatu-Whanganui (-1.2% y/y). These declines were offset by sales growth in Hawke’s Bay (+5.4% y/y), Auckland (+1.7% y/y) and Otago (+1.5% y/y).

Kiwi small businesses were paid on average 6.0 days late in September 2023, and 6.4 days in the September 2023 quarter.

“It’s clear the road ahead remains challenging for our small businesses as inflation, interest rates and the cost of living stay top of mind. That’s why it’s crucial to keep supporting them wherever possible and shop local when we can," Snelling said.

Despite weak sales results, jobs growth remained strong with a 6.9% y/y rise in September 2023 and a 6.8% rise y/y across the September quarter.

However, wage growth has weakened - something that will be of interest to the Reserve Bank as it struggles to get the lid on inflation, 5.6% annual rate as of the September quarter, and get it back into the targeted 1% to 3% range. 

Xero said small business wages rose 3.5% y/y in September, with an average growth of 3.4% y/y in the September 2023 quarter. This was down from the most recent peak of 6.5% in November 2022 and the average of 5.4% last year.

"Although small businesses may welcome this drop in wage increases, wage growth still remains below inflation. This puts small businesses in a vulnerable position as real wages are falling, meaning small business sales could remain under pressure," Snelling said.

Over the three months to September, only three sectors reported positive average monthly sales growth; hospitality (+1.4% y/y), other services* (+1.4% y/y) and construction (+0.1% y/y).

On the other hand, sales in agriculture were down 5.4% y/y,  and retail trade was down 2.6% y/y.

Xero says New Zealand sales growth is now a significant step behind Australia, which delivered a steady 5.5% y/y growth in September 2023.

New Zealand sales growth also dropped slightly behind the United Kingdom, which had +1.1% y/y growth over the same period.

"It’s clear we’re sitting in the middle of the pack when you look at the latest data coming out of North America, with the US experiencing a 7.7% drop and Canada a 5.6% drop in June 2023," Snelling said.

"With our new Government focused on the economy and bringing down inflation, it will be interesting to see how this impacts the country’s small business sales over the next quarter."

Snelling said the rebound in employment following the pandemic is "both consistent and impressive", as small businesses continue to compete with large businesses for talent.

"However if sales continue to trend downwards, this fast pace jobs growth could be difficult for small businesses to sustain."