Thus far, nobody has had a terrible result, bar The Reject Shop whose profits dropped 24 per cent. But, nobody has shot the lights out, and earnings upgrades for the second half of the year have been absent. "The reality is, reporting season looks ok, which implies earnings per share growth for the first six months of the fiscal year to be zero. That's a good outcome," Contango chief investment officer George Boubouras said. "One would expect the coming six months to be a slight improvement on that." In the vital Christmas month, retail sales grew by just 0.2 per cent.

It's hardly surprising that consumers are reluctant to spend. Unemployment is at its highest level in more than 12-years and wage growth has slowed to barely match inflation. Last week, the Westpac – Melbourne Institute survey of consumer sentiment increased to its highest level since January last year on the back of the RBA's decision to cut interest rates to a record low of 2.25 per cent. Up until then, weak consumer sentiment made sense, especially when looking at free household income, which takes out interest payments, mortgage, taxes and petrol, Deutsche Bank economist Phil Odonaghoe said. "Take those things out and income has been weak for quite a long time," Mr Odonaghoe said. "I think the fall in petrol prices and the cash rate will help, but I don't think it's going to be a very strong source of growth. For us, the weakness in wages and the rising unemployment rate have acted as a bit of counter to the other measures."

The outlook for retailers themselves doesn't paint a picture of confidence, with businesses intending to spend less this financial year than they initial thought. The latest capital expenditure figures, on retail trade from the Australia Bureau of Statistics, which were released September, combining both what retail has already spent and what it intends to spend the rest of the financial year, showed the figure had come down by almost $200 million to $2.4 billion in just one quarter. The rise of online shopping and the Australian dollar has been a major hindrance to local traditional retailers in recent years. With no staff in Australia cancelling out the burden of Australia's high wages in comparison to the United States, offshore retailers have been more than happy to take money from Australians searching for better prices. Many local retailers were caught napping when internet shopping took off and are only now coming to grips with the new online order, and even though the Australian dollar has come down dramatically, the old world is gone.

But, to their credit, retailers are adapting. Scentre Group's Westfield claims that its searchable online mall has helped create annual sales of $343 million in store and online. "Shoppers are increasingly researching products online prior to making purchase decisions, spending significantly more than store-only shoppers," Dr Sean Sands from the Australian Centre for Retail Studies and Monash University wrote in a report on Westfield. "Academic studies have shown that websites that focus on providing information on products and prices significantly increase revenues for retailers, even without the option to directly purchase online."

Harvey Norman is well placed among retailers to benefit from an improving in the housing market, Mr Boubouras said, while on the flip side, The Reject Shop is facing increasingly tough competition. The jury is still out on whether discretionary retail can make the transition to having a better online strategy that compliments their store rollout, Mr Boubouras said. "Competition with the northern hemisphere competitors, who do it better than the domestic operators, is really taking away a lot of that potential upside in earnings," Mr Boubouras said. However, discretionary retail cannot be painted with a broad brush; earnings and forecasts across the sector are quite mixed. "You have to be very specific on how you play it," Mr Boubouras said. "I can't see a back drop in the next 12-18 months where fund managers would be overweight the sector. It's just got so much restructuring to do."