Discounting helps retail sales recovery

Retail sales bounced back in the first three months of the year but economists say the rise was due to discounting rather than a pick up in demand.

Statistics New Zealand said yesterday that total sales rose 1 per cent or $141 million in the March quarter when adjusted for seasonal effects and inflation, making for a strong rebound from a 0.7 per cent fall in the December quarter.

The increase in sales was widespread, with 16 of the 24 store types recording dollar-value increases, led by motor vehicle and department stores sales up 3.1 per cent ($72 million) and 4.4 per cent ($38 million) respectively.

Retail prices for petrol rose 4.8 per cent over the three months but sales volumes were down 2.4 per cent.

Stripping out the surge in fuel prices during the quarter, pricing pressure within the sector remained flat, said ANZ National Bank economists, suggesting the growth in sales volumes was being driven by discounting.

"In order to try to elongate the cycle and encourage people to spend a little more, one of the mechanisms you use is a little bit of discounting," said chief economist Cameron Bagrie.

Despite the bounce-back, ANZ said, retail sales growth - which has been steadily slowing since June 1998 - was expected to slow further as lower house-price inflation, higher debt-servicing costs, weak consumer confidence and rising fuel prices weighed in.

The falling dollar was also contributing to a more difficult retail environment. "Retail sales momentum is clearly slowing, but it's far from the doom-and-gloom scenario," said Bagrie.

"They're still getting reasonable sales growth but the story for the retail sector over the next 12 months is going to be more of the same.

"It's going to be a pretty aggressive market, the consumer is going to be more cautious so retail is going to have to be pretty aggressive with their pricing to still get market share and sales growth going forward."

Deutsche Bank economists also expect to see growth in retail spending drop back in the second quarter.

The kiwi fell after the release of the data, closing at US62.47c compared with its US62.89c local open.

Retail sales were up for the quarter, but fell 1 per cent in March - well exceeding median economist forecasts of a 0.1 per cent fall.

Excluding car sales, that figure was down 4 per cent over the month.

Seasonally adjusted sales were up across all regions in the March quarter, with increases of more than 2 per cent in all North Island regions except Auckland.

Canterbury had the lowest increase at 0.9 per cent.

Bouncing back

* Retail sales have bounced back strongly in the first quarter.
* Total sales volumes rose 1 per cent to $141 million.
* That was a turnaround from the 0.7 per cent fall in the December quarter.