Why New Zealand’s Small Businesses Are Facing Tough Times in 2024
Small businesses in New Zealand are struggling in 2024 as rising costs and reduced consumer spending create challenges. Economic pressures, particularly in the construction, retail, and hospitality sectors, have increased stress and burnout among small business owners. According to the Ministry of Business, Innovation and Employment, company liquidations are up 40% compared to 2023. This trend reflects a climate that some compare to the aftermath of the 2008 global financial crisis, with conditions potentially more severe this time.
Impact of Rising Costs on New Zealand’s Small Businesses
One of the most pressing issues for small businesses in New Zealand is the rapid increase in operating costs. Wages, rent, materials, and compliance costs have all risen. Many businesses also face higher interest rates, adding pressure to their financial obligations. This has resulted in a “cost of doing business” crisis where covering these expenses has become increasingly difficult. Small business owners find it challenging to pass these rising costs onto customers, who are also tightening their belts due to reduced discretionary spending.
As businesses try to manage their expenses, they often make sacrifices, such as reducing their own income or working longer hours. However, these are not sustainable solutions in the long term. For many, the combination of higher costs and reduced consumer spending leads to a loss of profitability, forcing them to make tough decisions about their future operations.
Tima Miroshnichenko | Pexels | Rapid increase in operating costs is one of the most pressing issues for New Zealand small businesses.
Declining Consumer Spending
Consumer spending has dropped significantly, which has affected small businesses across various sectors. A recent survey revealed that New Zealand and Australian consumers have cut their spending on small and medium-sized businesses by about 60%, the highest reduction among surveyed regions. This shift has forced consumers to make different purchasing choices, such as opting for cheaper alternatives, delaying purchases, or searching for discounts. The hospitality and retail sectors have particularly felt the impact, as more people choose to cook at home or shop online for deals.
This decrease in spending has been compounded by a cost-of-living crisis that has affected many households. With rising interest rates, mortgage holders prioritize their payments over other expenses. This environment has led to a significant drop in foot traffic for small businesses, especially those located in city centers. As a result, businesses that rely on local customers or tourism have seen their sales dip considerably.
Comparing Current Challenges to the 2008 Financial Crisis
While the current economic challenges have drawn comparisons to the 2008 global financial crisis, some key differences exist. During the 2008 crisis, New Zealand’s official cash rate dropped from 8.25% in July 2008 to 2.5% by May 2009. These lower interest rates encouraged consumer spending and investment. Additionally, increased demand from China for New Zealand exports helped to boost the economy.
In contrast, today’s situation sees higher interest rates and a less favorable global trading environment. While consumer spending rebounded after the 2008 crisis, recent years have seen more prolonged pessimism. This is partly due to inflation and the lack of relief for small businesses. High inflation and reduced spending power mean that the New Zealand economy is facing a sustained challenge that may require a different approach to achieve recovery.
Holding On Through Difficult Times
@generalcollective I Instagram | Many New Zealand small business owners are determined to keep their operations running.
Despite the challenges, many small business owners are determined to keep their operations running. They are taking various measures to manage cash flow, such as delaying expansion plans, reducing expenses, and renegotiating leases. Exiting the market is often not an option, as business owners frequently have personal assets tied up in their enterprises. Business loans are commonly secured against personal homes, so liquidation is seen as a last resort.
However, for some small businesses, the cumulative impact of financial strain has led to quiet closures. Many owners find it too costly to continue but lack viable exit options. Others, faced with diminishing returns and rising costs, are forced to wind down their operations gradually, hoping for an eventual change in market conditions.
The Path Forward for Small Businesses in New Zealand
As small businesses navigate these tough times, a balanced approach that supports economic stability and business growth is needed. High interest rates and inflation have created an environment where cost management is critical, yet policymakers must consider the role of small businesses in the broader economy. Supporting innovation, infrastructure investment, and exporting can provide a path for small businesses to regain stability and growth.