Sales season brings big price cuts for shoppers, but will deep discounts damage retailers’ brands?

As retailers head into one of the biggest mid-winter sales seasons in the past decade, new data has shown where consumers are spending their dollars.

The new CommSec data shows cars and computers remain high on shopping lists, while tools, gambling and holidays are out.

There was less spending on air travel, gambling, books and newspapers, but sporting and recreational services and ‘little luxuries’ such as jewellery and watches saw large increases.

CommSec’s chief economist Craig James says the 10% rise in car purchases could have been boosted by lower tariffs on imported vehicles and the fact that car sales were depressed during the global financial crisis.

“The expiry of the government tax break accounted for the fact that spending on tools and equipment in the March quarter was down by almost 7% on a year ago,” he says.

“The spending cut-back on gambling and air travel is very consistent with the more conservative behaviour recently adopted by consumers,” he says.

“Aussie consumers have been shunning spending on non-essential or discretionary items in response to constant interest rate hikes from the Reserve Bank.”

This data might help retailers tailor their offerings in upcoming sales that are predicted to continue throughout the year.

In its current sale, David Jones has advertised discounts of up to 70% for the first time, while Myer is offering discounts as high as 60%. Most large retailers are expecting conditions will remain poor until Christmas.

But retail analyst and managing director of Retail Doctor, Brian Walker warns that long-term discounting can be dangerous for retailers.

“Extended discounting can be damaging because it shapes the consumer expectation,” he says.

“Over a long sustained period of time it can also damage the brand of the retailer, their point of difference in the market and their segmentation from competitors.”

Walker says it breeds a level of questioning in consumers about what price is the right price and what margins retailers are really making, which will make it harder for them to put prices back up to regular levels.

“If they are consistently on sale for most of the year it would be challenging for them to suddenly start not being on sale,” he says.

“It creates a bargaining mentality in consumers who are getting conditioned to the discounting.

“There’s no doubt that there’s already a cautious approach in the market by consumers because of the political and economical climate and they’re getting a little less trusting.”

Walker also points out that while online shopping is not directly taking sales from the traditional shops, it has an influence on the big boys because of the research functionality that it provides for buyers.

“Online is still primarily and principally a research tool. Online sales are still only less than 4% of all retail sales but consumers are researching products and services more and more.”

“If people are searching for a TV they’ll go online to investigate all the features and the price will be a definite factor. Then, in the vast majority of cases they will then go to the physical shop to negotiate,” he says. “They’ll come armed with information about pricing that they didn’t have before online shopping existed.”

“The environment of the shopper is changing now. It’s more 24/7 and there is less physical comparison between shops. Retailers have got a challenge to be unique, to have a point of difference and have an offer that isn’t just about price,” Walker says.