The surprising link between online shopping and rising house prices

Jessica Satherley
The surprising link between online shopping and rising house prices

With the ability to compare prices online and access to foreign retailers like Amazon, Kiwi shoppers are finding more bargains than ever before. 

The brave new world of e-commerce has had some surprising consequences though, one of which may have been the housing boom New Zealand saw over the past few years. 

The ability to compare prices and access bargains has kept retail rates low.  

Westpac NZ’s Chief Economist Dominick Stephens says those low retail prices have been “the main driver of amazingly low inflation in New Zealand".  

“The Reserve Bank has responded to low inflation by lowering interest rates, at times despite very strong economic growth. 

“And as we know, those low interest rates drove asset prices higher, including house prices.  

“So, the technological changes that have squeezed retailers have had a range of very important effects on the economy.” 

Ten years ago, most retailers would review their prices only twice a year, but now the majority are reviewing them on a daily basis due to heightened competition, according to a new Reserve Bank of Australia report. 

“Consumers are able to easily compare the price of products across multiple firms and determine which is offering the lowest price,” the report said. 

“Firms are able to continually monitor the online prices of other retailers using web scraping tools to ensure their products are competitively priced and to adapt quickly to changes in the retail environment,” the report said. 

“The squeeze on retailers’ margins has been a really important feature of the New Zealand economy over the past eight years,” Stephens says. 

“It has been a pain for some businesses, but a boon to consumers who have enjoyed lower prices as a result,” he said. 

The report analysed the margins in the retail sector for ‘food’ and ‘non-food’ categories. 

It found that both food and non-food retailers’ net margins have declined over recent years. 

“Net margins for food retailers such as supermarkets have declined by around 1.75 percentage points since 2011/2012.   

“Net margins for non-food retailers (excluding motor vehicles, fuel, non-store and commission-based retailing) have declined by a similar amount,” the report said. 

The decline in net margins is said to be consistent with the increase of foreign low-cost competitors and because operating expenses like rent and labour have increased.  

One way retailers have been able to take back some pricing power is by creating their own branded products, that competitors are not selling. 

Selling high quality premium brands also lets retailers make price points and margins higher. 

To keep costs down, some companies have moved manufacturing from China, to lower-cost countries like India, Bangladesh, Thailand and Vietnam, the report said. 

Offering the option of self-service checkouts has also allowed companies to reduce labour wage costs associated with employees, the report said. 

Tags:
, ,