Retail continues to be a tough sector to operate in, findings in the latest industry report show, as more than 50 per cent of businesses missed their sales targets.

Retail NZ's Retail Radar report, a quarterly survey among retailers which canvasses issues and business sentiment in the sector, shows activity remained sluggish in the second quarter of the year, and just 42 per cent of operators hit their sales targets.

Business and economic uncertainty and a lack of desire to spend on discretionary items by consumers has put many retailers on edge.

Retailers' outlook for the next three months continues to be pessimistic, with 43 per cent of operators surveyed expecting to miss their sales targets again.

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More than 50 per cent of retailers have missed their sales targets for five consecutive quarters.

The latest report shows retailers' hiring intentions were down on the previous quarter in the three months to July, and many were anticipating to downsize their workforce in the current quarter.

Retail NZ chief executive Greg Harford said consumers were still financially squeezed with household costs such as insurance bills, council rates and fuel taxes.

"Consumers or households are finding that there's a whole heap of things that they just have to pay for ... that reduces the amount of discretionary spend that consumers have got to go and spend in retail - that I think is a big contributor towards why so many retailers are not hitting their targets," Harford said.

The percentage of retailers missing their sales targets has been growing "steadily" over the last two of three years, he said.

"It's certainly been pretty grim ever since the general election in 2017, but even before that there was a lot of pressure in the retail market and consumers were just not getting out and spending in the way we'd like to see them do."

Harford said retail operators who were hitting their sales targets or performing better had scale and increasingly their own brands sold to the market.

"Even down at the smaller end of retail, we're increasingly seeing vertical integration within the sector and people taking on manufacturing and procurement of product and bringing it to market because they know it will meet a particular customer need."

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There was no sign of the sector getting any easier to operate in, he said.

"New Zealand overall, things are doing still a little bit better here than they are in comparable markets, the New Zealand economy is still relatively strong compared to some other places including Australia."

The bright spot for the sector

International retail chains looking to New Zealand for expansion, such as bulk discount retailer Costco and furniture giant IKEA, was a good sign, even though it would make it more competitive for domestic, he said.

Interest rates are projected to come down in coming months, as that flows through into cheaper mortgages over time, this means consumers could have more money in their pocket.

Economists expect interest rates will come down in the next three to six months.