Shoppers rush into David Jones Castlereagh St store in Sydney during the Boxing Day sales. (Don Arnold / Getty Images)

Australian retailers furiously competing against one another and international entrants are having to slash their prices in order to survive, the Reserve Bank of Australia (RBA) has warned.

As their profits take a hit, some retailers are shutting down after cutting their profit margins down to unsustainable levels.

It comes as consumers are spending less amid falling house prices in major capital cities and confidence remains low.

Everyone loves a bargain, but when it comes to shopping, Australians might be enjoying too much of a good thing.

That’s according to the Reserve Bank of Australia (RBA) which believes that shopping around is driving retailers to despair.

As Australian businesses try to compete with the likes of online titan Amazon for example, they’re being forced to compromise on price, a new report says.

“Consumers in the retail sector are increasingly price sensitive,” economist Matthew Carter wrote.

“In response, (retailers) have had to adjust their pricing behaviour, typically by increasing the size or depth of discounts on their products as well as the frequency.”

While discounts and constant sales might be welcomed by shoppers, business profits have been whittled away and the long-struggling retail sector continues to feel the pinch.

Such a situation is growing a business body count.

In just the last twelve months, men’s clothing store Roger David went into administration along with brands like Marcs, Pumpkin Patch, and Payless Shoes.

That’s not to mention the collateral damage.

As the recent milk wars between the big supermarkets demonstrated, those measly savings at the checkout for an individual can decimate farmers and other suppliers entirely.

In the broader scheme of things however such frugality is not without cause.

A decline in household spending, the largest part of the economy, is the hangover of a three-part cocktail.

“The retail sector is battling weak consumer confidence, falling house prices and competition from online and overseas competitors,” commercial credit analyst illion’s CEO Simon Bligh recently concluded.

Certainly, it has been those in New South Wales and Victoria who have cut back their shopping the most in recent months, at the same time that house prices in Sydney and Melbourne have been in freefall.

Retail trade is valued at $320 billion and is Australia’s second-biggest employer, so that’s dragging the broader economy down.

That’s partly because inflation — how much the economy grows — is measured by the price of consumer goods like furniture, food and clothing.

“This increase in discounting behaviour by retailers has been one of the factors contributing to low inflation outcomes in the Australian economy in recent years,” Carter wrote.

As Australians spend less, the economy slows and other businesses become reluctant to invest, slowing the economy even further.

Slow growth ensures that wages don’t grow, meaning less money in the pockets of shoppers and a growing reluctance to spend at all.

As a consequence, the ongoing price war isn’t so much a win for the customer as a symptom of something more concerning.

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