KEY POINTS:
Retailers say a modest fall in retail sales in April is camouflaging intense competition that is cutting margins and profits.
The 1.2 per cent drop, shown in Statistics New Zealand's April figures, seems small against a long-term trend of growth in retailing and spending that has led Reserve Bank Governor Alan Bollard to make increasingly strident calls for consumers to cut back spending.
But the Retailers Association is talking up the impact and says yesterday's results mark a change.
"The fall is certainly a sign that the market has softened and we expect it to continue into May and June," said chief executive John Albertson.
Retailers Association Northern region manager Russell Sinclair said retailers were reporting a marked slowdown in activity over the past six weeks since the survey was completed.
Suppliers to retailers were also saying that payments from retailers were slower, which traditionally indicated a tightening market.
Albertson said it was tougher for retailers than the figures for sales would suggest, with increased competition, including new players from Australia.
Retailers have also been hit with a double whammy from the weather.
"It is a phenomenon that has not been apparent before - we had a late summer affecting sales of summer seasonal goods and followed now with a late winter," he said.
"The biggest issue is profitability.
"There is hardly a sector that is not in trouble with margins - largely because of the heavy competition."
Australian fashion retailer Witchery announced last month it was setting up 16 stores in New Zealand, the latest in a string of retailers from across the Tasman to set up shop here.
Albertson said Australian retailers viewed the costs associated with setting up here as marginal because they were simply adding a few stores to their Australian footprint.
New Zealand retailers had also been expanding to create a tough competitive environment that meant lower profits and increased promotional costs.
Competition had got to the point that retailers could easily be hit by an increase in costs that would reduce slim margins, he said.
"The level of promotion that is required to keep customers coming though the door is a problem and retailers are now having a really close look at their strategies, and their position in the market."
Retail margins were around 5 per cent across the board, with the grocery sector running on much slimmer margins but higher volumes, he said.
"The [margins] vary across sectors, but if you are getting 6-8 per cent margin out of a retail store it does not take much for competitive pricing and cost increases to destroy what you have."
Sinclair and Newmarket Retailers Association general manager Cameron Brewer said the slow start to winter conditions was affecting sales.
Brewer said that although there had been mild increases in footwear sales, recent sales of heaters and coats were lower than expected.
Statistics New Zealand seasonally adjusted figures showed a fall in vehicle sales accounted for nearly half the 1.2 per cent decrease, which is the largest since February 2004, when sales fell 1.8 per cent.
Chilly outlook
* Retailers say the market is getting softer and consumers have been spending less in May and June.
* Warm weather is delaying sales of winter products.
* Margins are falling as retailers try to counter increased competition.
* Retailers such as Hellaby Holdings, Postie Plus and Hallenstein Glassons have lowered profit expectations.
