5 minute read 13 Jun 2024

Retailers must innovate not only for the digital age but also to meet the rapidly changing demands of cautious consumers.

Woman wearing augmented reality glasses using smartphone

Is e-commerce enough to satisfy New Zealand’s discerning shopper?

By Michael Summers-Gervai

Director, Business Consulting, Ernst & Young, New Zealand

Customer-centric transformation leader. From strategy to delivery. Gets things done. Sports nut. Art buff.

5 minute read 13 Jun 2024

Retailers must innovate not only for the digital age but also to meet the rapidly changing demands of cautious consumers.

In brief

  • Economic indicators and sentiment surveys suggest we have entered an extended phase of consumer restraint.
  • A massive 95% of New Zealand consumers are either cautious, concerned or downright pessimistic about their current financial outlook.
  • Retailers must reinvent their business models to meet the market and maintain relevance with customers thinking differently about their future.

When people talk about the ‘cost-of-living crisis’, it sounds like a short-term phenomenon that will soon peak. But political signals, economic data and consumer sentiment all tell us we have entered an entrenched period of belt tightening and household budget cutting.

The high cost-of-living continues to loom over daily life in New Zealand, according to the latest EY Future Consumer Index. EY teams have been capturing data on consumer sentiment and behaviours since 2020. The 14th wave of research, undertaken in March and April 2024, surveyed 23,000 consumers across 30 countries, including more than 500 in New Zealand.

FCI 14 shows just 6% of New Zealand consumers are confident about their current financial position, and a quarter feel worse today than they did just a few months ago. More than a quarter (29%) think life will be even harder in three years’ time.

EY Future Consumer Index 14th wave


are concerned about the rising cost-of-living


of New Zealand consumers are concerned about the national economy


say they will be more focused on value for money in the future

The Future Consumer Index, Key Data Snapshot


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Navigating the new normal

Economic downturns are a test of customer loyalty. Cost-of-living pressures are keeping customers’ wallets shut, with retail sales for 2024 fairly flat. When the survey conducted by EY asked New Zealand consumers about their future purchase criteria, price came out top; two-thirds (66%) of consumers said price would be the deciding factor in purchase criteria three years from now. 

But retailers are unlikely to ride out the current slump with sales and discounts. Delivering the May 2024 Budget, Finance Minister Nicola Willis offered some tax cuts but said the new government was ‘welcoming in a new era of careful government spending’1. No one is using the word ‘austerity’, but the choice of language communicates ‘constraint’. 

With purse strings pulled tighter, retailers will need to find new ways to engage and retain customers beyond just lowering prices. Value propositions that emphasise quality, trust, sustainability and unique customer experiences will become increasingly important. 

When consumers are more discerning and cautious with their spending, businesses must offer compelling reasons for purchase beyond cost savings.
Michael Summers-Gervai
Director, Business Consulting, Ernst & Young, New Zealand

Three signs of the times

The imminent closure of Smith & Caughey's after a 144-history is a sign of the times – in fact, that is exactly what Smith & Caughey's loyal customers have said. ‘It’s one of the last stalwarts of luxury department stores in New Zealand; it’s tragic that it's going, but it’s a sign of the times,’ said one customer when she heard the news. ‘Young ones just buy online now .’2

Announcing the decision to shut shop, Smith & Caughey’s Chair Tony Caughey said revenues had declined by 40% over the last five years. Competition from luxury brand stores and roadworks in the Auckland CBD were offered as reasons, but really it comes down to one thing. Smith & Caughey’s had struggled to reinvent itself, not just for a digital era, but for a different era.

Flybuys’ closure after 30 years in New Zealand is another sign of seismic shifts in the retail landscape. According to Loyalty NZ, the company that administers Flybuys, the alliance model has ‘run its course ’3. New Zealanders are still interested in loyalty programs – in fact a massive 95% of consumers surveyed for FCI 14 said they would join a new loyalty or rewards program for the right value exchange. But these loyalty programs are no longer about customers swiping cards and collecting points. Retailers now have the technology at their fingertips to create their own proprietary loyalty programs that offer customers more personalised experiences, and they are better placed to leverage customer data when they control it in their own ecosystem.

Motivations to join a loyalty program

A third clue is more general, and comes in the wave of companies closing their online marketplaces or discontinuing their delivery platforms. This tells us an online platform is not enough. Customers expect seamless shopping, fast delivery, competitive pricing and excellent service – and ticking all four boxes is challenging for many New Zealand retailers.

E-commerce is at a crossroads

A quarter of New Zealand consumers we surveyed said they were expecting to order fewer products, other than groceries, online in the future. Why is this? Online shopping remains a frustrating experience for many New Zealanders. Expensive shipping was the number one gripe in this wave of research by some margin, noted by 41% of consumers, followed by slow shipping (20%) and a poor website experience (18%).

New Zealand’s supply chain and logistics challenge – a small population stretched along two long, thin islands at the bottom of the world – is undeniably a hard nut to crack. Some brands are already using AI to standardise processes, optimise last-mile delivery and improve the customer experience. But all brands must find new ways to solve this challenge because a growing cohort of consumers are telling them they are no longer buying the e-commerce value proposition.

The motivations for shopping in-store are illuminating. Sure, two-thirds of people said their biggest reason for visiting a retailer in-person was to ‘see, touch, feel or try’ an item. But 41% said they simply wanted ‘to get out of the house’, while 29% said they enjoyed the experience of shopping ‘with other people around’. Bricks-and-mortar retailers who lean into these insights to create human-centred experiences are more likely to prosper, even in a period of consumer constraint.

What do these human-centred experiences look like? Think pop-up stores that allow customers to step into the world of their favourite superhero ahead of a new cinematic release. Think of retailers hosting yoga classes, live music or art exhibitions alongside their racks of clothing. Or think of how augmented reality and virtual try-ons are being used by beauty giants to personalise product selection.

Reasons for visiting in-person retailers  

So, where does this leave us? A digital presence is much more than a slick website, and many brands are yet to come to grips with the full complexity of the e-commerce challenge in New Zealand. A lovely looking front-end may give customers the right ‘feels’ in the first instance, but if the back-end doesn’t deliver, your customers – let alone their satisfaction – will slip away.

The views expressed in this article are the views of the author, not Ernst & Young. This article provides general information, does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information.

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In tough economic times, the reflexive response is often to think short-term – to slash prices, cut expenses, host sale after sale or revise profitability goals. However, consumers are telling us loud and clear: this is shaping up to be a prolonged period, not a short, sharp shock. Retailers and brand stewards must cast their gaze towards the future and commit to strategic investments that position them, not only for a digital future, but a different future.

About this article

By Michael Summers-Gervai

Director, Business Consulting, Ernst & Young, New Zealand

Customer-centric transformation leader. From strategy to delivery. Gets things done. Sports nut. Art buff.