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Discounts putting the squeeze on retailers

AAP logoAAP 5/10/2016 Marty Silk

Price wars between the supermarket giants and department stores continue to weigh on overall sales growth.

Retail spending rose 0.4 per cent in August to $25.1 billion, better than market expectations of a 0.2 per cent rise.

Department stores were the best performing sector of the retail industry, where sales leapt 3.5 per cent, while there was a 1.2 per cent lift in the value of cafe, restaurant and takeaway food sales.

But Westpac economist Matthew Hassan said retail sales remain subdued, with the latest rise, the strongest monthly growth since January, still below the long term monthly average of 0.5 per cent.

"Annual sales growth is still running at an insipid 2.8 per cent, with trend sales growth tracking an even poorer 1.7 per cent annualised pace," he said.

The Australian Retailers Association said price growth is still under pressure from aggressive competition, particularly between Coles, Woolworths and Aldi, and among department stores.

"With supermarkets accounting for nearly 50 per cent of all retail sales, the soft increase in the category contributes significantly to the low overall growth of the retail sector," executive director Russell Zimmerman said.

Commonwealth Bank economist John Peter said the retail sector was feeling the "pincer movement" of weak growth in household incomes and very stiff competition, though heavy discounting was keeping consumers buying.

Price cutting is contributing to weak inflation, he said, which has helped bolster the case for the Reserve Bank's two rate cuts in 2016.

"Monthly retail trade figures will continue to be lacklustre until there is either a lift in demand growth or supply side pressures ease and heavy discounting dissipates," Mr Peters said.

Mr Hassan said the rise in department stores sales in August was not as strong as it appeared, given a 5.8 per cent fall in July.

"Sales in this category rebounded 3.5 per cent in August - 'normalising' but still to a weak underlying trend, reflecting the specific challenges facing this type of retailing," he said.

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