Retail Ireland Monitor Q2 2015 and Budget 2016 Submission

Tuesday, 18 August 2015

Retail recovery on track, but parts of sector remain under pressure
Poor weather has hit summer purchases, online competition increases
Call to cut punitive marginal tax rate and support consumer recovery

Retail Ireland, the Ibec group that represents the retail sector, today published its Q2 Retail Ireland Monitor and Budget 2016 submission, which set out current trends in the sector and key ways the government can support the emerging retail recovery in Budget 2016. The fortunes of retail are finally on the up, but recent high profile failures highlight the pressure some retailers remain under. The group said October's budget was a vital opportunity to ease pressure on consumers and support retail employment.

Retail Ireland said mixed summer weather was a disappointment for many retailers, who benefit from additional seasonal purchases in periods of good weather. However, in general trends have been positive this year, with the domestic economy finally feeling the recovery. Price-sensitive shoppers and intense competition have kept prices down but, in contrast to recent years, consumers are more confident and willing to make larger purchases. Punitive tax rises over recent years have, however, dramatically reduced the spending power of many and this needs to be addressed on budget day.

In Retail Ireland's Budget Submission, the group called on Government to:
  • Reduce the tax burden on consumers: The marginal rate of tax is way out of line internationally. This year it should be reduced by 1% and the entry point to the marginal rate increased by €1,500 for a single person, with a corresponding increase for married couples. In addition, personal tax credits should be increased by €100 for all earners. This will increase spending power across the economy. The current high rate discourages the uptake of overtime work and limits the opportunity for productivity gains in a highly labour intensive environment such as retail. It is crucial that any cut in income tax is not funded through increases in other taxes such as excise duties, VAT, etc.
  • Make it more attractive to take on new staff: The government should reinstate the reduced employer PRSI rate of 4.25% as previously introduced under Budget 2011, before being reversed in Budget 2014. This is particularly important given the recommendation by the Low Pay Commission to increase the national minimum wage by 50c. The recommendation for a 6% increase was premature and very unwelcome. A rise will heap additional pressure on many retailers that have only just managed to put costs onto a sustainable footing.
  • Make it easier for retailers to succeed online: The online sales channel has proven a difficult one for many Irish retailers. However, with modest Government support, Irish retailers can position themselves to take advantage of the huge opportunity on offer. A new scheme should be introduced, based on the current R&D tax credit model system, allowing retailers to offset the cost of web developments against their VAT costs.
  • Support town and city centres: A pilot scheme should be introduced to allow towns and cities to access regeneration and development funds. This could be used, for example, to put in place Town Centre managers with responsibility for the development of commercial centres in towns and cities.

Key retail trends set out in the Retail Ireland Monitor include:
  • Service stations: A mixed performance was recorded during Q2, with total values falling by 4.1% versus Q2 2014, while volumes rose 2.1% when compared with the same three months of 2014.
  • Department stores: With total Q2 values and volumes up 4.5% and 7.8% respectively, the year’s positive start continued throughout the second quarter.
  • Pharmacies: While front-of-shop sales have maintained their positive start to the year, issues concerning the falling cost of medicine have had a negative impact on pharmacy operators.
  • Fashion and footwear: With values during Q2 climbing 7% and corresponding volumes soaring 10.6% when compared with last year, standalone fashion and footwear stores ended the quarter as one of the best performing retail categories.
  • Books and magazines: The market in books, news and stationery has recovered from a value deficit of -1.2% at the end of Q1 to a positive YTD value performance of 1.7% at the end of June, with Q2’s value growth alone at 5% versus last year.
  • Electronics: Q2’s total value of computers, electrical and electronics sales was up 4.3% on 2014, with volumes climbing 9.4% over the same period.

Retail Ireland Director Thomas Burke said: "Retail sales rose 2.3% in the year to the end of June 2015 and are 2.8% ahead of the same period last year, however, they still remain 14% behind pre-crash levels. A full recovery is a long way off. Future success is contingent on Government making the right budgetary and policy decisions now. Retail is labour intensive and has the ability to create thousands of quality jobs over the coming years. But getting the business environment right is vital."