Hungry retailers tighten belts

BLEAK TIMES: Retailers' Association chief executive John Albertson believes prolific discounting being used now will be unaffordable very soon.

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Shopper should start preparing for the end of the golden discounts, as retailers' margins become too skinny to survive on.

Statistics New Zealand figures on electronic card transactions for core retail industries showed a 1.2 per cent drop in June compared with May, the largest monthly decline for nearly two years.

The total value of transactions was larger than previous years, partly due to an increasing habit of electronic payment.

Westpac economist Doug Steel said growth in spending over the past few months had been supported by tax cuts, an increase in net migration and low interest rates.

The "pullback" last month was due to that impulse having dried up, and despite a culture of discount sales and stock clearance strategies there was no sign that spending was going to increase soon.

"It's still pretty volatile month to month. People are still reasonably cautious, but the outlook might be a little bit brighter."

Steadily increasing net migration figures would be a boon for retailers but it would not be an immediate effect, Mr Steel said.

Retailers' Association chief executive John Albertson said stories were varied, but the prolific discounting being used now would be unaffordable very soon.

Consumers would see the "smarter retailers" starting to wind back discount offers, as the battle for the discretionary dollar ground on.

"Margins are being stretched to their limit. The culture of 30 to 60 per cent off can't continue. The longer it goes, the harder the job is weaning the customer off it."

The volume businesses needed to sell to make money after discounts went up "astronomically", Mr Albertson said.

The Institute of Economic Research's survey of business opinion recorded 49 per cent of merchants had a decline in profitability and sales in the June quarter.

Merchant businesses were less pessimistic and on balance planned to increase prices over the next quarter, but most reported they would continue cutting stock and sacking staff than otherwise.

Hiring intentions were the lowest among merchants of all sectors surveyed.

Although sentiment was getting better, Mr Albertson said retailers should not be expecting a return to "normal spending".

Consumers had been burnt on various levels, from retail investments going bad to unfortunate experiences with consumer credit.

Since 2005 there had been widespread borrowing on soaring house values, and that money had been spent.

"You can't keep on doing that, the market is saying you can't keep borrowing. We are going to have a consumer who is more risk averse, living off their means rather than borrowing."

Retailers had to rejig their strategies to align with what customers wanted, Mr Albertson said.

"Saying here's a deal, put it on the plastic and pay for it next year, those days are over.

"They need to think about strategies that work with the customer so they can get what they want on the money they have available."

- © Fairfax NZ News