Retailer Harvey Norman warned on Monday of a 40 per cent decline in the company's profit due to hefty discounts. The firm estimated pre-tax profit for the year to June at $227 million, down from the previous financial year's $373 million.

It is not just the mark downs in tag prices that caused the reduction in profit but also a 7 per cent drop in global sales to $5.74 billion. Like-for-like sales in Australia also dipped 7 per cent while on a global basis it went down 6.5 per cent. Harvey Norman operates in Australia, New Zealand, Slovenia, Croatia and Ireland.

Harvey Norman explained the decrease in sales and profit to the weak retail environment and price deflation, particularly technology products. Despite the weak consumer confidence, the firms said its retail franchisees will continue to innovate, invest and improve product offering, online sales, staff development and strategic category enhancements.

It attributes the slump in global sales to the 6 per cent deterioration of the euro and the 4.7 per cent decline of the British pound. However, Harvey Norman said it benefited from the 1.7 per cent appreciation of the New Zealand dollar.

Harvey Norman Chairman and Founder Gerry Harvey admitted the electronic retailer's results are worse than expected. He pointed out that more retailers closed shop in the past 18 months and forecasts worse days ahead for the retail industry.

Even supermarket giants Woolworths and Coles believe there would be not much change in consumer behaviour in the coming months.

The only time that Australia's retail sector temporarily experienced an uptick in sales was when the federal government released carbon tax compensation to some households in June.

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