Retailers are bracing for the worst as they lower their earning expectations in anticipation of pessimistic sales for the September quarter.

According to the latest Dun & Bradstreet's National Business Expectations Survey one in three businesses are anticipating declining sales (27 per cent) and a similar number expecting lower profits (30 per cent) in the coming months.

Sales expectations are now at their lowest point in twelve quarters, following a fall of14 index points against June quarter figures. A similar decline (13 points) in profits expectations has placed the index in negative territory at -5.

According to Dun & Bradstreet CEO Gareth Jones Australian businesses are anticipating a difficult September quarter.

"The subdued outlook reveals the extent of uncertainty among Australian executives, with continued global economic turbulence and slowing local demand hitting the confidence and performance of local businesses," he said.

"In turn, this lack of confidence and subdued performance is creating a knock-on effect – businesses are halting investment plans, a situation which has the potential impact productivity gains and consequently GDP growth."

Dismal sales and profits expectations are flowing through to other key business indicators. One in five firms (21 per cent) indicate they will not replenish inventory levels in the coming quarter (now at an index of -1), and 15 per cent indicate they will need to discount to move stock.

More specifically, among retail firms, the Sales and profit expectations plunged 16 points to -7, and profit expectations down 17 points to an index of -18. These results are supported by demand expectations, with two-thirds (64 per cent) of retail executives anticipating demand will slow in the year ahead. 

This issue is also impacting retailers intentions in other areas, as an increased number of firms prepare to reduce inventory levels (now at an index of -10), and expectations for new staff and capital investment have entered negative territory (an index of -2 and -4 respectively).

Concern over online competition is further dampening retail sentiment, with 58 per cent of retail executives apprehensive about competition from online sellers, up 15 percentage points since last month. Likewise, more firms will monitor movements in the official cash rate, with half of retail executives expecting interest rates to have the biggest influence on operations in the quarter ahead.  This is an increase of nine percentage points since April.

"Conservative consumer behaviour is placing significant downward pressure on the retail sector. As a consequence, firms are expecting the start to the New Financial Year will be challenging," Jones said.

"The number of consumers tapping into online shopping continues to grow as increasingly budget conscious consumers compare prices and purchase from overseas when prices are lower. This trend is evident in ABS data showing a 0.2 per cent slump in retail sales in April.

"The retail sector in particular, is expecting interest rates to play a critical role in their performance over the coming months, with hopes of further reductions in the official cash rate to stimulate spending."

According to Dr Duncan Ironmonger, Dun & Bradstreet's economic consultant, the dark outlook for Australia's retailing sector which is evident in the D&B survey, is confirmed by the latest ABS retail sales data.

"ABS data show the main casualty from consumers holding back on spending has been the household goods group covering electrical and electronic goods, hardware, furniture, floor coverings and housewares. Trend sales for this group peaked last October and has fallen every month since then at an annual rate of -4.7 per cent," Ironmonger said.

"The other five retail groups continued to rise every month with the stand-out groups being cafes, restaurants and takeaways (+9,9% pa) and clothing, footwear and personal accessories (+8.5% pa). However the annual trend growth for all retail sales for the six months to April was only 3.3 per cent, barely ahead of the rate of inflation."