RETAILERS SLAMMED AS CONSUMERS TIGHTEN PURSE STRINGS IN LOW WAGE ENVIRONMENT

Written on the 31 May 2017 by Paris Faint

RETAILERS SLAMMED AS CONSUMERS TIGHTEN PURSE STRINGS IN LOW WAGE ENVIRONMENT
RETAILERS have been doing it tough this past year, as shy consumers have felt the pinch of rising costs coupled with record low wage growth.

Commonwealth Bank (CBA) research says this slump in consumer spending is likely to continue throughout the rest of 2017, given that households are now being forced to devote more money to health, utilities and education.

CBA senior economist Gareth Aird says consumers aren't forking out as much for non-essentials, which has caused several major retail brands including Topshop, Herringbone, Marcs and Pumpkin Patch to fall into voluntary administration.

"Consumers have a fine amount of disposable income and even with the assistance of a falling savings rate, record low wages growth has weighed significantly on the discretionary parts of retail trade," says Aird.

"Soft total retail trade growth is largely down to a lack of spending growth on consumer durables and clothing."

Not only is the retail sector reeling from changes in consumer confidence, it is set to face arguably its biggest threat from a single competitor as online giant Amazon makes landfall in Australia.

Amazon's impending arrival has cast a shadow over retailers who may be forced to cut profits and lower prices in order to compete.

It has also had a material effect on the ASX, as retail shareholders dump stock following a series of warnings and profit downgrades.

Largely linked to the threat posed by Amazon, Myer's (ASX: MYR) shares are at an all-time low of about $0.85 and other listed retailers JB Hi-Fi (ASX: JBH) and Harvey Norman (ASX: HVN) have also experienced significant sell-downs.

Online sales have also suffered overall, dropping by a total 0.8 per cent in April.

According to NAB, total expenditure via online stores in the past year reached around $22.37 billion, which is equivalent to about seven per cent of spending at traditional bricks and mortar stores.

CBA warns that until we see significant growth in wages, the retail market can expect a continued drought.

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Author: Paris Faint

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