With EU pressure to accept a bailout, Ireland’s economy is a mess. Will its retailers recover, asks Charlotte Hardie and Greg Lawless
if ever a sign were needed the Irish economy is in a mess, the events of last week must be it. As Retail Week went to press, the Irish government is steadfastly resisting the humiliation of a multibillion euro EU bailout, insisting it is fully funded until 2011.
The UK recession may have given you countless trading headaches over the past couple of years, but nothing compared with the relentless, full-blown, head-splittingly painful migraines experienced by retailers in the Republic of Ireland.
September 2010 was the 31st consecutive month of like-for-like sales decline in the Republic. Growth is but a hazy memory for many an Irish retailer, having been last recorded way back in February 2008. Only this week, it emerged that even Zara made a loss of almost e1.2m (£1m) from its Irish stores last year - about five times that of the previous year.
Symbolic of all its troubles was Dublin’s iconic department store Arnotts being taken under the control of its banks earlier this year, which rendered it, to all intents and purposes, state controlled. More on that later.
Retail Excellence Ireland chief executive David Fitzsimons sums up the country’s retail scene: “Over the last three years, retail sales volumes have imploded.” And Superquinn executive chairman Simon Burke is suitably downbeat. “With no meaningful recovery since 2008, there is a cloud of despair among retailers.”
It all makes for grim reading. As the entire country waits with bated breath to discover the impact of the budget next month, what is the mood among shoppers and retailers and what does the future hold?
If you look at the stats it certainly looks ever gloomier. This summer, figures from the Central Statistics Office showed that the value of retail sales had fallen by 4.8% in the 12 months to the end of June. In the year to the end of July, 114 retail companies had gone bust - an increase of 10% on the same period in 2009. Nearly 24,700 retail sector workers had been made redundant by the end of June and 10,000 more are expected to be hit by the end of this year.
Consumers are far from confident. Apart from house prices having plummeted to about 60% of their peak, the banking bailout of Anglo Irish could ultimately cost Ireland’s taxpayers £34bn. In addition, they are feverishly awaiting the December 7 budget, which is likely to hit them with a swathe of tax increases and budget cuts.
In October, the Irish government said it needs to save E15bn (£13bn) to achieve its target deficit of 3% of GDP by 2014. Burke says: “Consumers have pulled in their horns again.” He doesn’t expect retail sales to grow during next year unless budget cuts are not as severe as predicted.
Fitzsimons agrees that “consumer sentiment has weakened in recent months” and the savings ratio is starting to rise as consumers stop spending with fear of unemployment.
All sectors are struggling with their negative like-for-likes - some more than others. Fitzsimons says that although the value sector such as Penneys and TK Maxx are faring reasonably, the middle ground is being squeezed. Kingfisher finance director Kevin O’Byrne adds that “high ticket remains difficult” and says that “kitchens and bathrooms remain a tough market”.
Small retailers are perhaps among the hardest hit. John Corcoran - managing director of six-store Irish footwear chain Korky’s Shoes - is battling the sales slump. One of his stores on Grafton Street has a E500,000 rate and rents bill for 9,000 sq ft. “I’m in rent arrears and I’m going to court. Hopefully the landlord will be reasonable, that’s all I can hope for. International retailers opening up new stores will get better deals on stores because upward-only rent reviews have gone,” he says.
But there is the odd glimmer of hope for some sectors. For general merchandise and fashion retailers life is, as Shore Capital retail analyst Clive Black says, “a real slog”. But at least the grocery retailers have the luxury of regular weekly footfall, and a handful are managing to keep their head above water and even achieve some growth. At the end of October, Kantar Worldpanel in Ireland published results that showed market growth for the grocery sector for the 12 weeks to October 2010 - the first since February 2009. Discounters Aldi and Lidl have both won market share in consumers’ flight to value and continue to open up stores, as has Tesco.
Tesco has been in unfamiliar territory with the declining sales it has had in Ireland. But, says Kantar commercial director of Ireland David Berry, it has adapted its strategy. “It has reduced its prices, refurbished its stores and is continuing to open up new space,” he says.
Black adds that Tesco has, like other UK retailers with an Irish presence, been aided by its UK operations: “It has been leveraging the UK business in terms of supply chain and buying consolidated volumes from the UK,” he says.
Discounters’ and Tesco’s gain is another man’s loss, though, and grocers such as Musgraves, Dunnes and Superquinn have found life tough. Black explains: “Musgrave and Dunnes are procuring some products from the UK but they can’t compete against the scale of Tesco and their supply chain.”
Corcoran believes local Irish retailers are the most vulnerable: “They are 100% exposed.” In contrast, international businesses with an Irish presence have a buffer - their stores in the Republic form only a small percentage of their overall trade.
That said, one head of the best known local Irish retailer of all - Arnotts chief executive Nigel Blow - is more upbeat. After what has been the most turbulent time for the department store in its 167-year history, Blow says things are finally looking up.
The backdrop to the Arnotts debacle centres on the country’s over-inflated property market. The retailer took the fateful decision in 2008 to back a 1.5 million sq ft, E750m (£640.9m) redevelopment of its site to be known as the Northern Quarter, which would include a retail development. It never materialised as the recession took hold and Arnotts was left with a debt in excess of E250m (£213.6m) owed to the now state-owned Anglo Irish Bank and to Ulster Bank.
Blow, who has been at the store officially for one month but on a consultancy basis for about five months, says: “A redevelopment would have been appropriate but questions should have been asked. Effectively it was far too ambitious.”
Now, though, Blow says the model the banks have instigated is sensible. “They have created a new company and as a retail entity we’re fine. Customers have a huge affinity for the brand - it was unthinkable that it would close. The loyalty we’ve seen from the customers since the change has been immense. They’re pleased we’ve found a future for the brand and there is a huge amount of goodwill.”
And while he says it is impossible to be optimistic, the results it is seeing this year are more promising. “We’re seeing moderate growth to date and we’re not in freefall as you might think. Year on year, we’re ahead in all categories,” says Blow.
He adds that while domestic retailers are vulnerable, as Corcoran says, there are a few benefits. “In any market, local knowledge goes a long way. An Irish-based business probably understands the market better than the UK - yes, we don’t have scale, but we have knowledge. And there is also a huge amount of patriotism involved in being Irish.”
It is important to point out that despite the appalling numbers experienced by the sector, there is also an extraordinary amount of resilience among many Irish retailers. Dixons Retail Ireland managing director Declan Ronayne says too many people have relished in talking down the Irish economy and that actually, it’s not all about catastrophes. He believes that many retailers are over the worst - which was back in the first quarter of 2009. “What we had in Ireland in 2006 and 2007 wasn’t normal. No retailer expects it to recover to what it was like. We’ve accepted that and we’ll get on with it,” he says. “I’m not looking at it with rose-tinted glasses, but there are some upsides,” says Ronayne.
One, he says, is the reduction in labour turnover. Another is the sense that many people in Ireland are now looking at retail as a career far more than they were before the downturn. That, in turn, is helping to improve levels of service for customers. In addition, he adds that the unit cost of labour in Ireland has declined by 9%, whereas in the rest of Europe it has gone up by 4%.
“We’re not growing and we’re not likely to, but we’re not bankrupt and there is an absolute certainty that we’ll come through it - I’m confident of that,” adds Ronayne.
Furthermore, the cross-border shopping that received so much press last year when shoppers raced north of the border to take advantage of cheaper prices, has lessened. This is in part owing to the VAT increase in the UK, and in part because of the pound strengthening against the euro.
At the moment the picture for the Irish economy has never been more uncertain amid talk of a bailout.
As things stand life is utterly miserable for most of its retailers and many do not expect sales to grow at all during 2011.
There is also an awareness that life as it was before was not reality and was not, ultimately, sustainable. But among Irish retailers there remains hope for many, they may be down but they are definitely not out.
Ireland’s like-for-like sales Q3 2010
Giftware/ homeware -3.67%
Women’s fashion -5.42%
- The Irish retail industry remains in a state of flux as it experiences a continuation in like-for-like sales decline, albeit at a lower rate
- Many notable retailers claim that the early part of the fourth quarter has been a real challenge and as the budget for 2011 looms in December, consumer confidence has weakened significantly
- September 2010 was the 31st consecutive month of like-for-like decline. Growth was last recorded in February 2008
- Nevertheless, the quarter improved as time went on, resulting in a relatively strong performance in September 2010, when a 0.21% rate of decline was recorded
- However, significant concern is growing regarding the ability of certain operators to continue to trade
Source: Retail Excellence in Ireland Retail Industry Performance Review, third quarter, 2010