The Business Herald’s markets and banking reporter.

Consumers turn off to sales and discounts

Photo / Sarah Ivey
Photo / Sarah Ivey

Australian consumers are becoming immune to promotional sales and discounts, a study has found, and a New Zealand analyst says the situation is becoming similar on this side of the Tasman.

The Business of Retail 2011 Report - conducted by business magazine BRW and AMP Capital Shopping Centres - said Australian retailers were becoming increasingly pessimistic in the face of "sales fatigue", which reduced the impact of promotions.

Australian retail spending fell 0.1 per cent in June, according to official figures released yesterday.

But New Zealand Retailers Association spokesman Barry Hellberg said that despite a challenging retail environment in this country, discounts were still an effective revenue-driving tool for some companies.

"If you look at some well-known stores they have a particular bargain every weekend and that still works for them," he said.

Rod Duke, managing director of Briscoe Group, which operates Briscoes and Rebel Sport stores, said there was no sign of New Zealand consumers getting "sales fatigue".

"Because it's so tough out there [shoppers are] looking to get the best deal they can," he said.

Duke, an Australian who arrived in this country 20 years ago, said New Zealanders were a thrifty, bargain-hunting bunch.

"If you sell good-quality merchandise, at a fair price, or a bargain price, then you should do okay."

NZX-listed Briscoes Group reported a 14.6 per cent rise in full-year net profit to $24.1 million, excluding a one-off tax adjustment, in March.

At that time the company warned of a tough year ahead.

Goldman Sachs analyst Buffy Gill said that over the past 12 to 18 months consumers had become so used to discounted retail items they had become unwilling to pay full price for anything.

Asked if retailers were running the risk of lessening the impact of discounting through constantly marking-down stock, she said: "I think in New Zealand we've already reached that point."

Gill added that the level of promotion from some firms was damaging for their brands.

"It's almost like consumers have been exposed to ... what they now view as the true underlying price."

Mark Cooper, owner of The Athlete's Foot sports shoes store in Botany Town Centre, said most New Zealand retailers were discounting heavily and sacrificing margins to stay in business.

But his store made it through the downturn without altering its discount strategy - two sales each year, he said.

Cooper believed aggressive and constant marking-down of stock was not a sustainable way to run a business.

"I believe the retailers that are service-oriented and that have survived the last two years will survive the next two years, but the discounters will find it harder because they have set up an expectation for the shopper that they will be offered a bargain every time."

In a research note released late last month, Gill said discounting had increased over the past two months as retailers tried to move excess winter stock that had built up as result of a warm May and June.

"The impact of this will be a reduction in total sales dollars as well as pressure on gross margin for the period," she said.

Duke said Briscoe Group had been forced to deal with winter's late arrival.

"We've had to ... just dump the stock at prices we don't want to sell at, but you've just got to sell the merchandise," he said.

Desiree Clark, marketing manager of Manukau's Botany Town Centre, said local retailers were more optimistic than their Australian counterparts.

"New Zealand hasn't suffered from the massive discounting and sales culture of the United States and Australia, although the trend is now starting to gain momentum."

- NZ Herald

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