Sunday, 4 December 2016
Retail Ireland, the Ibec group that represents the retail sector, today published its Christmas Retail Monitor 2016 which predicts the Irish household will spend an average of €2,587 this December, approximately €720 more than any other month of the year and roughly €26 more than Christmas 2015.
Despite challenges in the market, retailers remain positive. The report predicts an increase of 3.7% in consumer spending this December compared to last year, with total sales of €4.21 billion up from €4.05 billion in 2015 - an increase of €160 million. The challenge for Irish retailers this Christmas will be to ensure that this buoyancy is felt locally and that Irish based retailers benefit from this additional spending. The monitor tracks key trends across the economy and sector to give an insight into how they are likely to impact the key Christmas trading period.
Key indicators point to retail prices remaining low, with aggressive competition between retailers driving prices down. Consumer prices have fallen every month since the Brexit vote as currency shifts influence retailers pricing strategies. The latest CSO data indicates that goods prices are down 2.9% year-on-year in Q3-2016. Downward price pressures will continue into the post-Christmas sales period. Retail sales in the first ten months of this year are up 1.6% in value terms on the same period in 2015.
While prices are falling, there has been a significant rise in disposable income across the economy. Gross disposable income was up 1.8% in the first half of 2016 having grown 5.3% in 2015. With goods prices in the first 10 months of 2016 down 8.5% on the same period three years ago and the labour market continuing to improve, consumers should be in a stronger position to spend when compared to last Christmas. Also, more people are in work this Christmas, which is good news for retailers. In Q3-2016, the employment market reached over two million people; this was the highest level of employment recorded since Q4-2008. The numbers employed is now expected to be 2.9% higher this Christmas compared to last.
The Retail Monitor also highlights significant growth in e-commerce transactions as we approach Christmas. Central Bank statistics show that e-commerce transactions recorded on Irish debit and credit cards jumped by 20% from €1 billion to €1.2 billion between July and September as the value of sterling fell. This was way above trend and is likely to be tracking the currency shift. This growth is likely to continue into the Christmas period.
Retail Ireland Director Thomas Burke said: "The next few weeks are by far the most important trading period of the year. While retail sales growth has softened in recent weeks, retailers remain optimistic. More people at work, a rise in disposable incomes and falling prices should lift the consumer mood and translate into increased sales. Currency pressures and a drop in consumer sentiment have made recent months difficult for many retailers. But the retail sector's challenge is the consumer's opportunity. The coming weeks will see heavy pre-Christmas discounting, and a New Year sales bonanza."
In terms of expectations for Christmas 2017 within the various categories of retail, Mr Burke pointed to the following:
Supermarkets and convenience stores:
With the grocery and convenience market back in growth, the outlook for Christmas 2016 trading is at worst neutral. The sterling weakness of recent months is adding to deflation in this sector. There is concern at cross border leakage of trade as UK prices are highlighted and robust weekend trade from Southern shoppers is reported in border towns in Northern Ireland.
With Christmas day falling on a Sunday, there will be a full week's trading before Christmas. However, complications of the sterling exchange rate after the Brexit vote will result in more cross border shopping, both physical and online. Price match strategies will erode margin without necessarily driving much by way of incremental sales.
Fashion, Footwear and textiles stores:
Christmas will be challenging for retailers in this category but good for shoppers. With a high level of discounting activity occurring before Christmas and over the Black Friday weekend, customers’ appetite for the January sales may be diminished, requiring deeper discounting to clear excess inventory.
Like for like sales in convenience, and in particular in forecourt convenience, have been strong through most of 2016, and we expect that to continue into the Christmas season and beyond. Fuel sales have been strong in 2016, especially over the last two quarters. Stronger diesel sales have more than compensated for the consistent decline in sales of unleaded fuel. We expect that to level off somewhat in the coming years.
The Pharmacy sector is expecting a very competitive retail environment over Christmas, where value is still an extremely important factor in store choice, and that promotions, payday and special customer events will have a big role to play. Key categories include seasonal gifts, fragrance and electrical beauty with customers also looking for a personalised element to the gifting process. We expect the online channel to be a significant part of the offering across the period, particularly in the same key categories.
Books, newspapers and stationery stores:
The expectation this Christmas for Books is mixed, in that market volumes are expected to be up but market value will be down. As 80% of the Christmas book market is sourced from the UK, the market will experience significant price deflation of circa 10-15% given the movement in sterling rates between the two periods. Sterling price deflation and direct competition from UK providers will add to pressure on online sales performance. An increased discount will be required to maintain competitiveness. News and magazines will continue to decline circa 5% with Stationery expected to hold its own on last year.