The impact of the lockdown on the retail industry— an analysis using retail sales data of New Zealand
In the past two years, many countries were locked-down with various restrictions on gatherings and shopping to stop the spread of the pandemic. It has hard hit retail industry. However, there have been no studies on the extent of the impact of the lockdown on the retail sales amount, probably due to the difficulty of controlling the effects of other concurrent events. For example, Figure 1 shows the retail sales amount and its annual growth rate of Hong Kong, and it has started falling since February 2019, much earlier than the outbreak of COVID-19, even though the lowest point of -44% was recorded in early 2020. Also, there are Cash Payout Schemes in Hong Kong during the period which would inevitably affect the retail sales.
Why New Zealand?
This article uses New Zealand’s retail data for analysis, for two main reasons:
- New Zealand had been locked-down twice, one in 2020Q2 for about 2 months and one in 2021Q3 for about 4 months. As the first lockdown successfully stopped the spread of the virus for a year, from 2020Q3 to 2021Q2, the lockdown was basically lifted and retail activities returned to normal in this period. Also, there was no cash payout scheme to residents, the retail sales data reflected mostly the actual market reactions;
- During the first lockdown, due to restrictions on entry of tourists and non-locals, the plummet in retail sales was caused by the combined impact of (a) restricting gatherings and shopping of local residents and (b) restricting entry of visitors and non-locals. However, in the second lockdown, the fall in retail sales was only caused by the impact of restricting gatherings and shopping of local residents, since the border has been closed in both 2020 and 2021. In other words, the impact of the first lockdown on the retail industry is reasonably expected to be much more severe than that of the second.
How much was the retail sales amount reduced?
Figure 1a shows the retail sales amount and its annual change of New Zealand. Before the outbreak of the pandemic, it was about NZD 27 billion per quarter. The first lockdown caused retail sales to fall by 15.4% (annual change), from NZD 24.8 billion in 2020Q1 to NZD 20 billion in 2020Q2. After lifting the restrictions in 2020Q4, retail sales rebounded sharply to more than NZD 28 billion. The second lockdown, on the contrary, caused retail sales amount to drop from NZD 27.5 billion to NZD 25.1 billion, a decrease of 1.7%. It is 13.7% less than that of the first lockdown, reflecting that the retail consumption of tourists and non-local visitors has a strong impact on the retail industry in New Zealand.
Figure 1b shows New Zealand’s total retail sales (seasonally adjusted) and its quarterly change. The first lockdown resulted in a 17.5% drop in retail sales (quarterly change), and the second lockdown made a 7.0% drop, the difference of 10.5% (quarterly change) reflects the proportion of the tourists’ and non-local visitors’ retail consumption.
Which retail sectors are more affected by the pandemic?
The lockdown and the restriction of gatherings have a greater impact on the tourism-related and catering industries, and less impact (or even positive impact) on supermarkets and grocery stores, as households are forced to buy food to cook at home. There were no dining out, and much less demand for hotel accommodation.
Figure 2 shows the quarterly changes of retail sales amounts of various sectors. The data confirm that the two hardest hit sectors were the accommodation and catering industries, which are obviously directly related to the decrease of tourists and non-locals, with declines as high as 40.0% and 39.9% respectively (quarterly changes, the same below).
The rebound after lifting the restriction measures may be related to the increase in local tourists and the use of hotels for MIQ services. Secondly, the large proportion in the reduction of fuel consumption of 35.1% probably reflects the association between work-from-home and energy consumption reduction.
On the contrary, in the second lockdown, the retail sales amounts of accommodation and catering industries fell much less, by 9.9% and 18.5% respectively. First, some hotels were converted to MIQ use. Second, it confirms the hypothesis that the impact of the first lockdown includes the reduction in retail sales due to the restriction of entry of tourists and non-local visitors. Taking food and beverages as an example, the impact of the first lockdown was about -39.9%, and the second one was only -18.5%, the difference between the two probably reflects the impact of retail consumptions of tourists and non-locals visitors on food and beverages.
More interestingly, the declines of the retail sales amounts of department stores and furniture, hardware and textiles in the two lockdowns show that these retailing activities are not easily replaced by e-shopping. In fact, their drops in the second lockdown (22.6% and 18.1%) were even more than that in the first lockdown (18.3% and 12.9%), indicating that the retail sales of department stores and furniture, hardware and textiles to tourists and non-local visitors are trivial.
Finally, some declines in retail sales amount are not necessarily due to a decrease in demand. There are also cases where there are no goods supply for sale due to disruptions of supply chains. For example, the decline in car sales may be related to the disruption of the automobile supply chain.
With the New Zealand government’s decision to live with the virus, we can compare the impacts of the zero COVID policy and the living with COVID policy on the retail industry in the coming future. Which policy do you think will adversely affect the retail industry more? You are invited to leave your responses in the comment box now, and we will discuss it when data is available in 2022Q3.