Jump in number of Auckland businesses shutting doors in lockdown, data shows

Thursday, 14 October 2021

When Yashi Narula sold his Auckland restaurant Pepperjacks in June, he had to accept “peanuts” for the business he had spent seven-and-a-half years building. But it was the only alternative to closing it and making the staff redundant, some of whom had worked with him for years.

Narula says he struggled through the first two Auckland lockdowns and it seemed an impossible battle. His landlord would only defer rent, and there was little prospect of making enough money when trading was allowed to cover the catch-up rent payments that would require, on top of normal expenses.

“The second lockdown, it was a waste of time to open for takeaways.

“We were saying do we want this stress to carry on, I’ve been in this game now for about 30 years. I just decided to close shop and put it on the market for whatever I can get.”

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New data shows more businesspeople are opting to get out.

Business closures in Auckland were up 13.8 per cent in September compared to last year’s monthly average, credit bureau Centrix said.

Christchurch’s were up 10 per cent, while Wellington’s were at 97 per cent of average.

Companies Office data compiled by Dot Loves Data showed 9524 business closures in August. In the previous two months, there had been almost 12,000 closures.

By comparison, in the three months between February and April, only 5241 businesses closed.

Business New Zealand chief executive, Kirk Hope, says all businesses are short of workers.

Dot Loves Data government director Justin Lester said the jump was significant but would not reflect the effects of the latest lockdown yet.

“Last year we had the March, April, May lockdown and we didn’t see the big spike until September, October, November.

“This spike is just as big and reflects that a whole lot of people struggled over summer and didn’t want to keep going.”

ACT leader David Seymour wants more support available for businesses.

Auckland restaurant Euro announced earlier this month that it would close after 22 years because of the effects of the pandemic.

Kirk Hope, chief executive of BusinessNZ, said he was following the data closely.

“The economic data is still quite strong and business confidence appears to be holding but there is a group of businesses who are pretty desperate.

“I think you’ll see a potential escalation as this situation in Auckland goes on longer and longer. We’re two months in now, if we’re at level 3 with picnics for another month that [number of closures] might shift up.”

ACT Party leader David Seymour said the resurgence support payment, which is designed to cover fixed costs, should be made available every week, not every three.

“The Government response needs to be proportional to the cost it is imposing,” he said.

Alan McDonald, head of advocacy and strategy at the Employers and Manufacturers Association, said his organisation had received calls from people with questions about restructuring and redundancies since the start of lockdown. Fifty people had registered for a webinar on how to close a business.

He said there should be targeted support for Auckland businesses. That could mean a lower threshold to qualify for the wage subsidy, which currently requires a revenue drop of 40 per cent.

“We keep hearing, ‘oh we are looking at this or that’ but nothing is forthcoming. We’re getting ‘we understand, we know Auckland is struggling’.

“If they were honest, people could make the hard decisions. There are a lot of people getting close to that.

“There’s increased labour costs, electricity costs, increased compliance cost … look at all those factors and no sign of any easing in lockdowns for the Auckland region. There’s a lot of factors that say ‘do I want to keep going?’,” McDonald said.

Infometrics chief forecaster Gareth Kiernan: “Failure by the government to get the timing and scale of New Zealand’s safe reopening to the world right could have long-term consequences.”

Gareth Kiernan, chief forecaster at Infometrics, said there was room for the closure numbers to increase significantly and the risk of significant economic fallout increase the longer restrictions dragged on.

“Following the GFC, we saw corporate liquidations, at their worst, running at roughly three times their pre-GFC level,” he said.

“Arguably the major risk at the moment is the concentration of the negative effects of lockdown in a relatively tightly defined subsector of the economy. Our data shows that there are about 8300 hospitality business units (covering food services and accommodation) in Auckland, making up about 4 per cent of Auckland’s business population.

“If we assume that lockdowns lead to a similar reduction in total Auckland business numbers of 1.6 per cent that we saw following the GFC, but that half of those businesses are in the hospitality sector, it would represent a 20 per cent drop in hospitality business numbers in Auckland. That’s only a scenario, rather than a prediction, because the figures are so muddy.”

Yashi Narula says he feels for Auckland businesses.

He said the Government’s emphasis on vaccination was important because it recognised the challenge of the delta variant.

“Business resilience is being worn down, and every week at level 3 in Auckland is another week closer to more businesses disappearing, leading to more sustained economic disruption.”

Kiernan still forecasts the economy bouncing back strongly.

“Job numbers remain high, and people have been saving money during the delta lockdown. That money will eventually be spent, and our experience from last year shows that backing local can get New Zealand’s economy motoring again.”

Infometrics predicts that the economy will grow by 3.6 per cent during 2022.

But questions remain around how the Government will respond if its vaccination targets are not met, what restrictions might remain in place for sectors such as hospitality and events, and how the reopening of international borders will be managed.

“Failure by the government to get the timing and scale of New Zealand’s safe reopening to the world right could have long-term consequences for the tourism sector and other business linkages with overseas” Kiernan said.

“Increasing freedom across more countries is turning the focus back on New Zealand’s transition from elimination to how we live with Covid-19, while still protecting citizens and our health system.”

For his part, Narula said the Government needed to listen to businesses about what it was really like.

“They need to talk to business owners, what’s actually happening on the street rather than listening to advisers or anyone who has not run a business before. There can be a lot of scenarios and strategies and stuff but that’s not practical when you come to the nitty gritty of it.

“For takeaways for instance, how much prep do you do, how food do you make, what happens if it doesn’t get sold, where does that cost go? Simple things like that. How long will people wait in a queue?

“They need to come to the nitty gritty of it. Telling landlords to be kind does not help.”