Iconic Australian retailer Myer has managed to revive its ailing profits after years of increasingly disappointing results, all while Australians are tightening their purse strings.

In a surprising turnaround, the retail titan on Wednesday reported a half-year profit of $38.4 million despite a fall in sales numbers – a result that chief executive John King said “demonstrates the positive customer response” to several changes made by the business since September 2017, after Myer posted a $486 million loss.

Those changes included improving “customer experience” (such as improving staff’s product knowledge), cutting costs, a focus on selling higher-margin products and a “renewed focus” on exclusive brands, Myer wrote in its statement to investors.

“There is a strong focus across the entire business on reducing costs that do not directly benefit the customer or enhance their experience in store or online,” Mr King said.

“We have put in place a more streamlined and accountable structure in the support office, which is delivering positive results, and we have identified numerous other cost-saving opportunities across the business which may be material in future years.”

David Kindl, chair of retail business consultancy Retail Doctor Group, said it was an encouraging sign for the embattled department store operator and “certainly” looks like Myer has turned a corner.

“Any business that can maintain lower sales but increase their profits indicates they’re being run very well,” he said.

However, Mr Kindl said it will be “interesting to see if [Myer] back it up” and report similar strength in the second half of the financial year given recent data on consumer spending and confidence, including Tuesday’s Ai Group performance of services index (PSI) , indicate discretionary spending is drying up.

Ai Group’s Performance of Services index showed sizeable contractions in retail and hospitality. Source: Ai Group performance of services index February 2019

Ai Group chief economist Julie Toth said the performance of services index, which most recently showed notable contractions in retail and hospitality trade, has highlighted a “a reluctant discretionary spending pattern for quite a long time”.

‘The money’s got to come from somewhere’

Business owner Rex Rehki said it has been a difficult couple of years for retailers. Photo: Killian Plastow

Rex Rehki, who owns Play Music and DVDs in Melbourne’s CBD, told The New Daily that even his regular customers are coming in less frequently and being more selective with the purchases they make because the general economic climate isn’t conducive to discretionary spending.

“If you’ve got a half-million-dollar mortgage, I don’t think you’re going to have your $30 to spend on whatever it was you were spending it on,” he said.

“The money’s got to come from somewhere, so the first thing people drop is retail spending.”

In the past few years, Mr Rehki has responded to the “tough environment” facing retailers by moving his store to a more affordable location, introducing vinyl records (“the only part of the business that’s improving on the music side of things”) and changing how he orders stock.

Mr Rehki added vinyl records to his store four years ago, and is the only medium for music that’s seeing improvement. Photo: Killian Plastow

Consumers hesitant to spend

The decline in discretionary spending is unsurprising to Mr Kindl, who noted that this type of spending tends to drop off when consumers are nervous.

“And there’s a few reasons for consumers to be nervous,” he added.

Chief among those concerns are falling house prices and low wage growth, both of which Mr Kindl said make people feel less wealthy and less willing to purchase discretionary goods.

According to the Australian Council of Trade Unions, that low wage growth coupled with increased living costs has already pushed Australia’s standard of living back to 1991-recession era levels.

But Mr Kindl also attributed some of the weakness at the start of 2019 to the looming federal election – an idea that was equally supported by University of Tasmania marketing lecturer Dr Louise Grimmer.

“At the moment we are definitely witnessing a contraction in spending on luxury and non-essential items and I think one of the reasons that is contributing to this is the upcoming federal election,” she said.

“When there is uncertainly, people become quite conservative in their spending and we are seeing consumers adopting a ‘wait and see’ approach. Once a new government is installed, we may see consumers become more confident in their spending.”