Xero data shows New Zealand small business sales drop

Xero's recent data highlights ongoing challenges for small businesses in New Zealand, as illustrated by declining sales, sluggish wage growth, and workforce reductions.

The Xero Small Business Insights (XSBI) for the quarter ending in September reports a 2.7% year-on-year decrease in small business sales, a drop greater than the 1.4% decline noted in the previous quarter. This trend affects all tracked industries except 'other services', which saw a marginal increase of 1.3% year-on-year.

Among the hardest-hit sectors were construction, agriculture, and retail trade, experiencing declines of 5.1%, 4.1%, and 4% respectively. Regionally, sales contractions varied, with Taranaki facing the steepest fall at 6%, while Northland's decline was more modest at 0.9%.

The decline in sales appears to be influencing wages, which grew by 2.8% year-on-year in the quarter, a reduction from the previous quarter's 3.7% rise and significantly below the pre-pandemic mean of 3.9%.

Despite a reported 6.6% year-on-year increase in employment, this growth is predominantly driven by a mere 27.2% of small businesses, suggesting that job creation is limited to a small segment of firms. Furthermore, 31.3% of small businesses are scaling down their workforce, marking the highest rate of downsizing since the early months of 2020.

The XSBI also highlights notable impacts within the hospitality, manufacturing, and construction sectors, where 45.3%, 34.9%, and 33% of small businesses, respectively, have reduced their workforce over the past year. In Auckland, 34.1% of firms reported workforce reductions over the same period.

Conversely, Hawke's Bay bucked the trend with 30% of small businesses expanding their workforce in the past year, the largest growth recorded among regions.

Bridget Snelling, Country Manager - Aotearoa New Zealand at Xero, commented on the broader economic implications. "Outside of a couple of months, small business sales have been flat or declining over the last 12 months. The recent data shows this is now impacting wages growth and a growing portion of small businesses are reducing their workforces," Snelling stated.

Reflecting on the contrasting situation in Australia, Snelling noted, "Across the ditch, small businesses are seeing something quite different. Their sales are up +3.5%, more small businesses are growing their workforces than decreasing them, and wage growth is close to the pre-pandemic average. Across the ditch and the growth in Australia is below average too, which adds context to the challenges the Aotearoa New Zealand small business community is facing."

She also highlighted the delayed benefits from economic measures intended to support businesses, saying, "It's clear many small businesses across New Zealand are yet to feel the benefit of the OCR cuts that began in August, or the income tax cuts that began on 31 July."

Emphasising the need for community support, Snelling added, "We need to be doing what we can to support small businesses during these challenging economic times. This can be as simple as shopping locally or paying all invoices as soon as possible."

Snelling cited recent Xero research, indicating the adverse impact of late payments on small businesses, costing Kiwi firms an estimated NZD $827 million last year. "We must all do our part, especially the large organisations with unacceptably long payment terms," she urged.