Wednesday, 11 May 2016
Retail Ireland, the Ibec group that represents the retail sector, today said that Brexit is the most immediate and significant threat to the Irish retail recovery and consumer confidence, and warned of a sharp rise in cross border shopping if a vote to leave further weakened sterling. A UK decision to leave the EU would be a major economic shock and would prompt a period of immense uncertainty that would inevitably set back the consumer recovery.
The retail sector is particularly exposed. The sector is at the mercy of fragile consumer sentiment; many UK headquartered retail operations are key players in the Irish market; the UK and Irish retail supply chains are intrinsically linked and easy access to Northern Ireland retail outlets means consumers can quickly and easily divert spending north of the border on foot of currency changes.
The group today published its latest quarterly Retail Monitor (see attached pdf) for Q1 2016, with key indicators highlighting continued growth in the sector during the first quarter of 2016, largely driven by St. Patrick's Day and an early Easter. However, international uncertainty allied with domestic cost pressures would suggest that continued strong growth this year is not guaranteed. Retail Ireland currently projects consumer spending growth of 4.1% this year, but this figure would most likely be subject to a downward revision in the case of a Brexit.
Retail Ireland Director Thomas Burke said: “The recent decline in consumer sentiment reflects concerns about external risks such as a Brexit and domestic political uncertainty. The recent suggestion by leaders of the UK Leave campaign that the UK would choose to exit the EU single market post-Brexit would further increase the likelihood of the reintroduction of some form of border between the Republic and Northern Ireland and additional barriers to trade with the rest of the UK. This is a deeply worrying prospect for any retailer operating across the British and Irish markets."
On business costs, Mr Burke said: “Retailers are increasingly concerned at a rising cost base and the development of unrealistic wage expectations. The cost of goods and services across the economy is similar to what it was in 2008. This reality needs to be reflected in wage expectations. If we lose our competitive edge, we will pay for it in jobs. On a more positive note, the continuing fall in unemployment and a rising population are very positive trends for retailers and should feed into stronger sales figures in the coming years."
Other key retail trends set out in the Retail Monitor include:
· Supermarkets and convenience stores:
The performance of supermarkets and convenience stores confirm that growth has finally permeated into a stubbornly flat sector. With value growth for the first three months lagging behind volume growth it is clear that inflationary pressures remain repressed as shoppers continue to buy deals or adjust shopping patterns to avoid any potential price increase.
· Service stations:
Unleaded petrol sales continued to fall during the first quarter of 2016. Consistent with recent trends, diesel sales have further increased over the period. This reflects customers continued migration from unleaded to diesel vehicles. Overall volume growth in Q1 2016 at 5.8% is ahead of the growth in Q1 2015 (2.8%) and ahead of Q4 2016 (4.8%) suggesting an increase in the numbers of cars on the road.
The sector grew by 4.4% in value terms in the quarter and 6.3% in volume – reflecting both the price competitiveness of the sector and reductions in the reimbursement costs of medicines. Category wise the overall growth was driven by small growth in prescription volume, strong over the counter healthcare sales due to a late cough and cold season, and a good performance in the gifting categories of beauty gift and fragrance over Valentines Day and Mothers Day.
· Department Stores:
The landscape for Department Stores has changed dramatically in recent months with a number of well established Department Stores closing their doors in recent times. In store innovation and new formats have helped drive footfall to this sector in recent months, while also further improving customer engagement and continuing to incrementally increase turnover. Beauty is performing very strongly as is lingerie.
· DIY and hardware:
Q1 2016 finished positively for the DIY, home and garden sector, with early season momentum aided by the long school break for the combined St. Patrick’s Day and Easter season. DIY and hardware was driven by the continued solid underlying demand for the materials, tools and decorating mainstays of the sector.
· Books, newspapers and stationery:
The book, newspaper and stationery market has seen robust value growth of 7.7% over the first quarter driven by a stabilising book market, sterling inflation against the euro and the positive impact of the 1916 commemorations across book, newspapers and other related products. In addition, the timing of Easter in the first quarter in 2016 was also positive.