Discount daze with full price phobia

BY CLAIRE MCENTEE

The recession may be over but the hangover is not and Kiwi shoppers have come down with a case of "full-price phobia," retailers say.

Bombarded with sales as retailers tried to prise purses open throughout the downturn, consumers have come to expect discount deals.

While signs indicate the plunge in spending is over, paying full price is still a step too far for many, meaning shoppers continue to cash in and retailers are bracing for a subdued year.

The Warehouse reported yesterday a year-on-year 17 per cent jump in net profit to $57.4 million for the six months ending January.

After adjusting for a $7.4m charge last year in relation to its withdrawal from food and liquor sales and excluding unusual items, the retailer's profit was flat at $57m, compared to $56.8m in 2009.

A takeover of the big Red Shed was on the cards in 2008, when Woolworths and Foodstuffs, which each own 10 per cent stakes, made separate bids, but these were quashed as The Warehouse could not be ruled out as a significant supermarket competitor in future.

Rumours of fresh bids have begun to circulate but analysts are at odds as to whether anything will come of it.

Craigs Investment Partners analyst Mark Lister says the supermarket operators are well-positioned following the downturn but any takeover activity in the short term is unlikely, while Coriolis Research retail analyst Tim Morris says neither operator can make a move while the other holds 10 per cent.

Chief executive Ian Morrice says pent-up demand for big-ticket items and specialty retail categories saw some consumers spend up in the second half of 2009, but this was not necessarily good news for department stores.

The Warehouse lifted consumer electronics sales on the back of stronger demand for appliances but suffered in categories such as music and DVDs and gardening.

The retailer increased sales in its growth categories, including homeware, footwear and accessories, in which it has introduced higher-priced products.

But this did not offset the impact of its failed foray into food and liquor sales, and sales shortfalls in other areas, including a forced sell-off of surplus seasonal stock in clothing and gardening.

"What I'm not confident about is how long this recovery and type of selective consumer spending is going to last. Consumers are much more attuned to promotions and remain that way coming out of the recession."

Shoppers are sitting and waiting for sales, and while The Warehouse is fundamentally a discount-driven retailer, it needs to target its promotions, he says. "It's a question of making sure the promotions we're putting out there are the ones consumers are going to pick up on."

Earlier this week Briscoe Group reported an 80 per cent year-on-year profit jump to $21.03m for the 12 months ending January, and a 7.3 per cent sales lift to $416.69m.

But managing director Rod Duke was far from bullish about the year ahead, describing the outlook as cautious.

The group had responded to the prevailing full-price phobia.

"In recessionary times you will get that. People will be hungry for a bargain or a product that's not at full price. Our promotions in the lead-up to Christmas and from Christmas have been aggressive and that seems to have resonated with customers."

Retail electronic card transactions for February echoed the cautious sentiment – down 0.4 per cent as shoppers spent less on furniture, appliances and clothing but more on food.

Economists said subdued spending might pick up later this year.

Mr Lister says retailers with a trans-Tasman presence may be better positioned than those without, as they can leverage off the robustly recovering Australian market, but he was not expecting fireworks in the retail sector for at least six months.

Consumers are focused on paying down debt and the unemployment level which hit 7.3 per cent last month would be cause for pause for some.

An aversion to paying full price will probably be more pronounced in Australia, where retailers traditionally discount more aggressively, but New Zealanders will have been exposed to this through trans-Tasman retailers and could have developed a taste for it, he says.

Mr Morris says it will be a slow climb back to normal spending levels and New Zealanders appear to be holding off splashing out on big-ticket and discretionary items.

A predicted burst in spending before an expected increase in GST to 15 per cent in October would have a "transitory" impact on retailers' coffers but this would only be felt by those selling big-ticket or premium goods, he says.

Mr Morrice says most retailers will make a splash before the GST hike but indications are the rise is likely to be offset by cuts to income tax and the net effect on consumer spending is difficult to predict.

- © Fairfax NZ News