Radio workers have been gripped by the unexpected speed at which New Zealand’s consumer economy has been collapsing since Christmas – and they won’t be the last. Jonathan Milne reports.
When broadcaster Tova O’Brien uttered the resounding words, “they screwed us,” they resonated beyond the 1 percent audience share of a small talk radio operation and its owners.
Because O’Brien and the 30 radio colleagues who were effectively fired this week weren’t really overcome by management – they were overcome by a rapidly declining consumer economy.
Retail and hospitality are the first sectors to feel the downturn; radio is where these sectors invest much of their advertising money. To that extent, when O’Brien tweeted “devastated,” she was a canary in the mine.
Today, FM’s on-air implosion was just one dramatic exposition of what, by putting a few indicators together, appears to be the sharp decline in consumer spending that the Reserve Bank was pushing for.
Mark Jennings, co-editor of Newsroom, says most media companies began to notice a drop in retail advertising in December. MediaWorks is heavily in debt, so the lower revenue and cash flow will really put a strain on it.
According to the NZ announcesActing MediaWorks CEO Wendy Palmer told tearful radio staff that she wouldn’t have taken the job last month had she known how dire the financial situation was. “MediaWorks, like the entire advertising industry in New Zealand and internationally, continues to be impacted by a lower revenue, higher cost environment.”
MediaWorks’ main competitor is the NZX-listed NZME, which includes the Herald and radio stations led by Newstalk ZB. The company says it has maintained earnings results, but only despite falling business confidence to historic lows, supply chain challenges, labor shortages, higher interest rates and inflationary pressures.
Chief executive Michael Boggs, who delivered his financial results last month, warned of a “soft start” to 2023. He has pledged to keep shareholders updated on NZME’s annual meeting this month. “There is uncertainty in the economy and in the market.”
So if it looks like this in the radio media, which rely so heavily on retail advertising, how do the retailers themselves feel?
One of the country’s largest retailers, The Warehouse Group, is cutting 340 jobs. Chief executive Nick Grayston told investors he expected a tough second half of FY23 due to rising costs, inflation, interest rates and wages. “While the macroeconomic outlook remains unpredictable, we are taking action to ensure that operational performance continues to improve,” he says.
The Warehouse Group is only sustained by its expansion into groceries. People still need to eat and some of The Warehouse’s food prices are more competitive than those of the two major supermarket chains.
Briscoe Group CEO Rod Duke, who announced the company’s results this month, said he expected deteriorating economic conditions and subsequent negative impact on customer sentiment to continue into calendar year 2023. He says the company’s margins are under pressure and warns investors shouldn’t underestimate how difficult trading will be.
“We expect NZ retail in general to remain highly sensitive to continued uncertainty related to deteriorating economic conditions, customer sentiment, cost pressures, higher interest rates and political uncertainty given the upcoming general election.”
Kathmandu is slightly more optimistic. “While the consumer outlook remains uncertain, with high global inflation and rising interest rates expected to impact consumer demand, we remain cautiously optimistic,” said Michael Daly, CEO of the KMD Brands group.
The country’s 28,000 retailers employ more than 220,000 people. Retail NZ boss Greg Harford says the start of 2023 has been “incredibly tough” for them, with a significant drop in in-store and online sales. “Half of all retailers expect not to meet sales targets in the current quarter and 30% are not confident their business will survive the next 12 months.”
This all touches their bottom line. The extreme weather, low consumer confidence and inflation impacted by domestic factors such as wage increases, supply chain and supplier price hikes – he says it all hurts.
At this point, the indications are that Reserve Bank Governor Adrian Orr has had the recession he wanted, and New Zealanders are “cooling down” their spending.
Harford tells Newsroom that customers are not spending and costs are rising. “My request to everyone is to go out and support their local shopkeepers and try to keep the economy going,” he begs defiantly.
“It’s not clear to me how rising interest rates will help mitigate the cost increases retailers face,” says Harford. “So while I appreciate that’s the only tool he has, it’s a pretty blunt one and possibly not the most useful.”