Brexit shadow hangs over retail

Wednesday, 16 November 2016
Retail Ireland, the Ibec group that represents the retail sector, today expressed growing unease at softening consumer demand and retail sales in the run up to Christmas, as highlighted by the latest edition of the Retail Ireland Monitor. The last quarter has seen retail sales growth slow and consumer sentiment dip as the full effects of the UK decision to leave the EU begin to crystalise.

Retail Ireland called on Government to prioritise support for the sector over the coming months and ensure recent currency shifts are not allowed to erode the jobs intensive retail recovery. An resolute focus on cost competitiveness is required. As sterling drops and competitive pressures rise, a renewed effort is needed to keep labour, energy, regulatory and insurance costs in line.

Retail Ireland Director Thomas Burke said: "While sales values grew by 1.1% in the third quarter of the year when compared with the same period last year, the steady decline in growth rates quarter on quarter is a cause for concern. The 23% slump in the value of sterling since the beginning of the year has prompted more consumers to travel North to shop, with new figures also showing a surge in online shopping in the months following the UK vote. 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 sterling fell. This was way above trend and is likely to have mostly gone to UK based online retailers.

"The Irish retail sector is working hard to adjust prices to reflect this new reality, but is still selling products that were purchased at a much different exchange rate a number of months ago. Goods prices have fallen by 2.9% on average over the last quarter and, in the first 10 months of the year, were down 8.5% on the same period three years ago. There is limited scope to reduce prices further. Retailers are squeezed on the one side by a consumer that is demanding price reductions to reflect the sterling devaluation, and on the other by UK-based suppliers seeking price increases to offset increasing input costs. This pressure has the potential to destroy margins in the sector."

Key retail trends set out in the Retail Ireland Monitor include:

Service stations: Since the beginning of September, the industry has seen fuel prices increase by over 12% following an OPEC deal to cut production. This has posed a challenge to both volume and sales in Q3. Sales in store are up for the quarter and this is in addition to a year on year lift in both volume and value.

Department Stores: Despite total sales values increasing by 1.5% compared to Q3 2015 and total sales volumes rising 2.3% over the same quarter last year, this quarter has been tough for Department Stores. The devalued sterling exchange rate has driven Irish shopper’s cross-border and online to UK-based websites and there has been a decline in UK tourist spend.

Pharmacies: The pharmacy sector grew by 1.0% in value terms and 1.3% in volume in Q3 compared to last year – reflecting both the sector’s sustained price competitiveness and reductions in the reimbursement costs of medicines. On a category basis, the overall growth was driven by modest prescription volume growth and strong over the counter healthcare sales due to an extended hay fever season.

DIY and hardware stores: Quarter three has been broadly positive for the sector. Sales value growth was 2.4% higher compared to Q3 2015, sales volume grew 4.4% over 2015’s third quarter. The sector continues to see steady if unspectacular growth in the project driven categories such as timber, flooring and tiling.

Books and magazines: The books, newspaper and stationery market disappointed in Q3 with CSO data suggesting the market was down 5% in both volume and value. Book volumes were relatively stable during the period with some price deflation at the end of the quarter due to weakening sterling.

Supermarkets and convenience: Total Q3 sales values and volumes were up 2.5% and 3.1% versus last year. Tobacco products are the only substantial sector within supermarket and convenience to experience material inflation which is strongly linked to excise increases.