New Retail Monitor shows sector on the front foot

Thursday, 11 February 2016
Retail Ireland, the Ibec group that represents the retail sector, today published its latest quarterly Retail Monitor (see attached pdf), with key indicators highlighting the return to growth in the sector during 2015. This positive performance in 2015 was supplemented by a strong Christmas trading period which saw sales rise by 3% on the same period in 2014. See below for a more detailed look at specific retail trends.

The Retail Monitor points to significant potential in the sector, at a time when the country is showing the highest GDP growth levels in the EU. The group estimates consumer spending will rise by 4.4% in 2016, following growth of 3.7% last year. A key factor supporting further recovery over the coming months will be an increase in the numbers at work by 50,000. The recent dramatic fall in oil prices will also boost consumer spending power.

Consumers look set to benefit from yet another year of low inflation, with intense competition keeping prices down. The group estimates overall inflation in the economy will be less than 1% this year. In 2015 goods prices fell by 3.8% in the full year as shops discounted their products heavily in a battle for footfall.

Retail Ireland however warned that many pressures remain and many of the key indicators remain stubbornly static. Turnover remains 10% behind levels of the mid 2000s, employment in the sector is still 37,000 behind pre-crash levels and over 3,000 retail units closed in recent years. Many businesses are also reporting an increase in wage pressures and other business costs, including insurance and rent in recent months.

Retail Ireland Director Thomas Burke said: "2015 was the year of the retail recovery. For the first time in seven years we saw a sustained, if incremental, increase in sales across all major categories of retail. This growth was boosted by a strong Christmas, which was in line with our pre-Christmas prediction and the sector’s best since 2008.

"2016 is a year of opportunity. While volume growth is strong, value growth continues to lag behind. Consumers still expect a discount on their day to day purchases. The signs are positive however, and if costs are contained, we can expect a further strong year for the sector. More people are at work, disposable income is rising and falling oil prices will increase consumer spending power. This is good news for the retail sector, but also for the wider economy. It means more jobs and more tax revenue."

Other key retail trends set out in the Retail Monitor include:

Supermarkets and convenience stores: Q4 2015 was the best performing period since early 2009, driven principally by additional shopping trips across a larger customer base, particularly over the busy Christmas period. This saw the full year ending 3% up in value terms with volumes 4.6% higher than 2014. However, shopping patterns transformed by the recession are not expected to reverse in the near term as the migration to discount formats continues with customers still strongly motivated by price and value.
Service stations: The country’s service station operators saw the overall value of sales in the combined fuels market fall by -11.0% in Q4 and -8.1% over the entire year. The drop in the market for unleaded petrol continued throughout Q4, but at a slightly slower pace than in the first half of 2015. Meanwhile, diesel sales continued to gain momentum, mirroring previous trends.
Pharmacies: Irish pharmacy operators saw their combined sales value grow by 3.8% over Q4 with a 7.5% surge in volume – reflecting the price competitiveness of the sector and the ongoing impact of reductions in drug reimbursement costs. The final quarter across health, beauty and fragrance lines was defined by three peaks – Black Friday weekend, the days immediately before Christmas and the start of the sales. In-store, and more significantly online growth, pushed November’s values up 5.7% year-on-year, compared to December’s more modest performance of 2.6%.
Department Stores: Department Stores saw their Q4 combined sales values rise by a solid 5.9% with volumes up 9.0% over 2014, buoyed by an unexpectedly early start to Christmas shopping during a particularly impressive November which itself saw values soar 11.2% year-on-year, whilst December, traditionally considered the peak shopping month, returned a much more modest value growth of 3.0% over 2014. Most in-store categories saw positive growth, with beauty, homewares, luxury fashion accessories and men’s formalwear remaining key drivers throughout the year. Enhanced tourist spend also helped boost performance, particularly in the higher profile Dublin city stores.
DIY and Hardware: Solid demand in the core DIY categories throughout the year enjoyed a further boost during Q4. December sales values grew by 2.2% over 2014, with the full year ending 3.7% up on previous as construction projects and home renovations rebound strongly. Christmas trade, always important for home and garden operators in decorations, seasonal lines and house plant sales in particular, grew well. A counter to the generally positive trends was the performance of the fuel sector, with a much milder winter reducing demand.
Books, newspapers: Dublin city and suburban stores are outperforming regional outlets, whilst consumers’ preference for digital formats continues to significantly impact news and magazines in particular, exacerbated by cover price increases from UK publishers and the cumulative impact of euro-sterling exchange weakness. That said, online sales of physical books performed strongly around Black Friday, with spending even more concentrated during December (combined values up 3.7% on 2014) – impacting store-based revenues whilst boosting overall performance.