The majority of New Zealand's private small and medium enterprises (SME) were profitable last year, but overall profits in the sector were down almost 30%.
Accountancy firm Grant Thornton's study, using a panel from its more than 5000 SME clients, found their revenue grew by 6.7%, compared with 2010, but overall profits fell by 27.7%.
As with recent recognition from big retailers, such as outdoor sports supplier Kathmandu and Hallenstein Glasson, there is now a public expectation of buying items during sales, eroding profit margins.
Grant Thornton partner Paul Kane said in a statement the rising cost of sales, which increased by 12% during 2011, was the major cause for the decline in SME profits last year.
"Businesses are struggling and are attempting to generate sales through price reduction which is having a detrimental effect on the profit margin," he said.
The business panel showed profit levels in the retail trade sector dropped by a massive 76.1%, while revenue was up 8.3% but the cost of sales increased 11.8%.
"The recent profit plunge announced by Kathmandu shows that this kind of thing is happening throughout the country," Mr Kane said.
Kathmandu's first-half profits plunged 43%, which the company blamed on lower gross margins, higher costs and competition across its operations in New Zealand, Australia and the UK.
Mr Kane said wholesale trade was the only sector where the panel reported a rise in profits, up 7.1%, which Mr Kane said it was most likely due to improvements in the buying currency, as many businesses within this sector imported goods.
