An investigation by CHOICE has found that 76 per cent of Australians are not aware the retailers record their faces, with Kmart and Bunnings only advising customers of the security measure via small signs at entrances.
CHOICE has announced it is referring the retailers to the Office of the Australian Information Commissioner (OAIC) to investigate potential breaches of the Privacy Act.
The advocacy group is also calling on the federal government to implement a regulatory framework that protects consumers from harmful and unfair practices.
CHOICE consumer data advocate Kate Bower has slammed the retailers using facial recognition technology on customers as "completely inappropriate and unnecessary".
"Using facial recognition technology in this way is similar to Kmart, Bunnings or The Good Guys collecting your fingerprints or DNA every time you shop," Bower said.
"Businesses using invasive technologies to capture their customers' sensitive biometric information is unethical and is a sure way to erode consumer trust."
University of Technology Sydney professor Edward Santow, who is a former Australian Human Rights Commissioner, has said facial recognition technology raises serious questions about privacy.
"Even if that technology was perfectly accurate, and it's not, but even if it were, it also takes us into the realm of mass surveillance," he said.
"And I think there will be great concern in the Australian community about walking down that path."
In response to CHOICE's concerns, Bunnings' chief operating officer Simon McDowell said the retailer was using facial recognition as one of several measures to prevent theft and anti-social behaviour.
"At selected stores our CCTV systems utilise facial recognition technology, which is used to help identify persons of interest who have previously been involved in incidents of concern in our stores," McDowell said.
"It's really important to us that we do everything we can to discourage poor behaviour in our stores, and we believe this technology is an important measure that helps us to maintain a safe and secure environment for our team and customers."
CHOICE said Kmart and The Good Guys did not respond to its inquiries.
However, CHOICE argues the retailers are not doing enough to alert customers to the security measure.
"Discreet signage and online privacy policies are not nearly enough to adequately inform shoppers that this controversial technology is in use," Bower said.
"The technology is capturing highly personal data from customers, including infants and children."
CHOICE surveyed more than 1000 Australians between March and April 2022 to gauge consumer awareness of facial recognition technology, with 76 per cent of people saying they did not know retailers were using facial recognition.
Those who suspected it was being used wrongly named Coles and Woolworths as using the technology.