The volume of retail sales plunged a record 2.9%, far more than the previous record decline set during the 1997 Asian crisis, with sales far weaker than Westpac, the market and the Reserve Bank expected.
"Unlike the Asian crisis, this quarter's decline is part of a long, sustained slide in retail spending. Sales volumes have now fallen for six quarters running and are 6.8% below their June 2007 peak."
Rising unemployment and concerns around how the world recession would ultimately impact at home had left consumers too rattled to spend money upgrading durable items, he said.
Car sales fell 11.4% in the quarter and were now 32% down from the 2007 heyday.
Along with the plunge in car sales, furniture and floor covers (down 3.5%), hardware (down 4.5%) and appliances (down 5.9%) all suffered.
The only market segment to post a convincing increase in sales was supermarkets - probably as people cut back on takeaways and eating out, Mr O'Donovan said.
The questions to consider now were how much further retail sales would fall and would they recover?
In the past month, the housing market had picked up, consumer confidence had improved, international economic news had been about "green shoots of recovery" and the higher New Zealand dollar had kept a lid on the price of imports, he said.
However, no glimmer of that relatively positive news was reflected in the monthly retail figures for March, with nominal sales down a further 0.4% in the month.
Last week's electronic transaction figures for April showed a 0.3% increase in retail transactions but that read more like a lacklustre response to the tax cuts that came into effect on April 1 than a portent of sustained retailing recovery.
"It seems increasingly likely that most of the cash from tax cuts and lower interest rates will be saved rather than spent."
The twin house and share-price busts had forced many New Zealanders to take a long hard look at their overall wealth and long-term spending power.
The long overdue correction to a more sustainable level of consumer spending, financed by income rather than debt, was under way, Mr O'Donovan said.
There were more hard times ahead for retailers although the lifting of national savings by spending less was likely to please the rating agencies.
At a glance
• Largest quarterly fall in retail sales on record.
• Cautious consumers avoid upgrading cars and appliances.
• Per-capital spending is now down 8.8% since peak.
• More interest rate cuts ahead.
