Discounts erode retailers’ bottom line

    Discounts erode retailers’ bottom line

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    The lacklustre start to the sales season has failed to provide any relief from the “deflationary spiral” hitting major retailers.

    And industry experts said yesterday the culture of discount and counter-discount was driving customers away at a time when stores should be shoring up their bottom line.

    Major retailers Myer and have slashed prices down to 50 per cent in a bid to draw frugal customers back to shops as figures show the worst sales environment in 20 years.

    Myer said yesterday the sales season had not offered any respite from the horror nine months the sector has experienced. “What we’ve seen is disappointing, but in line with what we were expecting,” Myer spokeswoman Jo Lynch said.

    “We expected a slightly disappointing stocktake as consumers continue to save, but the whole industry is experiencing a period of subdued spending.”

    Testing the dominance of Myer and David Jones will be the much-heralded opening tomorrow of the Bourke St store of Spanish retailer Zara’s — which is expected to offer a mix of low prices and a changing line-up of catwalk copies.

    retail analyst Edward Butler said that shoppers no longer believed that sales were the best time to find cheap deals.

    “Consumers find it hard to believe in sales,” he said.

    “The idea of a special – it is oxymoronic. Not only that, but discounts that looked generous in the past don’t look so much now,” Mr Butler said.

    “A 10 per cent discount today has very little impact,” he said.

    Mr Butler said the constant sales cycle during the global financial crisis had created a deflationary cycle among retailers that they now struggled to shrug off.

    Myer’s share price hit a record low of $2.74 last week, while David Jones’ share price has plummeted to a one-year low of $3.97.

    Credit Suisse’s Grant Saligari said it was a good time to buy into the major retailers.

    “It has been a difficult retail environment, but Myer and David Jones both offer value,” Mr Saligari said.

    Australian National Retailers Association chief executive Margy Osmond said it was too early to tell if there would be any bounce from the sales.

    “There may be a lack of people moving through the stores,” she said.

    “There were a lot of people out and about at Christmas, but they weren’t buying.”

    Source : Herald Sun