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Christmas retailers squeezed despite growing consumer confidence

Retailers are being hit hard as consumers are choosing not to splurge this Christmas.

While almost half of consumers reported "very low" levels of stress, spending across essential and nonessential items has fallen to its lowest seasonally adjusted levels since early 2015, the NAB consumer behaviour survey found.

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"What seems to be happening is they're more relaxed, but that doesn't mean that they're going to spend more," NAB chief economist Alan Oster said.

"Reading into the Christmas period, we're softer than we thought it was going to be."

Overall, Australian consumers are the least stressed they have been since mid-2012, but lingering issues have prevented them from spending more than before.

"Consumers are still concerned about the fact their wage growth is not strong, and they're still basically saying 'I'm not going to spend a lot'," Mr Oster said.

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Additionally, high consumer confidence typically does not reflect retail spending.

"Most measures of consumer sentiment are not well correlated with actual spend, that's a general story and this survey is showing exactly the same thing, except it's showing it much more explicitly."

The most anxious spenders are middle-aged single mothers, while this quarter's most confident spenders are self-employed single men over 50, particularly from rural areas.

Regardless of how much they are willing to spend, consumers aren't expected to put fewer presents under the tree, IBISWorld senior industry analyst Nick Tarrant said.

"We're seeing not necessarily that consumers buy less gifts this Christmas, but that they'll be more discerning over where they spend it and how much they spend," he said.

Mr Tarrant also anticipates decreased spending over the Christmas holiday as part of a wider trend, and he expects department stores to be hit hardest.

Shoppers are expected to spend $116.90 per capita in department stores in the lead-up to Christmas, he said. This is down 2.8 per cent from last Christmas.

"Competition from online retailers and heavy discounting in the industry will negatively affect sales this Christmas," Mr Tarrant said.

"As consumers are being more price-conscious, they're more willing to check prices online."

He cited Myer and David Jones as being most affected by price-savvy customers trading in-store experience for cost. The two retail giants account for almost 30 per cent of department store sales.

However as Christmas day nears, online shopping declines and consumers return to brick-and-mortar stores.

"Online shoppers at Christmas tend to be more organised and do everything a lot earlier, and now it's last-minute shoppers coming in store," said Mel Ward, corporate affairs manager at Myer.

Myer's online sales have increased by 74 per cent this year, but during Christmas consumers must be organised enough to shop ahead of shipping deadlines, Ms Ward said.

Despite the advantage of instant gratification, Mr Oster and Mr Tarrant see a continued decline for brick-and-mortar retail.

"When we ask them about how their trading's going, it's pretty poorly," Mr Oster said.

"I don't think it's in any retailers' interests to say that Christmas is not great, but then again I look at what we're seeing across our eftpos and various cards, and I look out and I see a lot of pre-Christmas sales on, and I think 'well maybe it's not that good'."

Price wars and the entrance of foreign retailers such as H&M; into the local market pushed profit margins down, Mr Tarrant added.

Where brick-and-mortar stores can save on overheads without sacrificing customer experience is through pop-up outlets, which are becoming more common, he said.

However in general, Mr Oster believes this decline in spending is a bad sign.

"We've seen a big slowdown. If you're not going to be getting good results at this time of year, you're never going to be getting good results."

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