After the National Australia Bank recently declared the retail industry ‘in recession’, the Reserve Bank of Australia has suggested the retail industry is suffering from the weakest business conditions of any industry in Australia. The Competition and Profit Margins in the Retail Trade Sector report, published during the RBA’s June bulletin, found that net profit margins have declined for all retailers over recent years, driven by a decline in prices. This fall in margin suggests a reducti
reduction in the industry’s pricing power, with retail firms offseting this decline through cash-saving measures such as vertical-integration and adjusted product mixes, as well as a cut to operating expenses such as rent and labour.
“The retail sector has undergone significant structural change since the early 2000s, including the rise of online shopping and the entrance of new international firms into the market,” report author RBA senior representative Matthew Carter wrote.
“This price competition may also affect the profit margins of retailers as they seek to maintain a ‘lowest price position’ in the market [which could] influence other business decision and have wider economic consequences.”
Much of this is being driven by consumer demand, the report states, with retail customers having become increasingly price sensitive due to the abundance of options of how to purchase.
According to the report, around 60 per cent of retailers in its liaison program indicate they review their prices either daily or weekly, largely driven by the actions of competitors.
