Retail momentum eases as Brexit unnerves shoppers

Sunday, 14 August 2016
Retail Ireland, the Ibec group that represents the retail sector, today published its latest Retail Monitor, which highlights greater consumer unease following the Brexit vote and increased pressure on many retailers due to sterling's rapid decline. With currency movements outside our control, the group said Budget 2017 must be used to support the domestic economy with income tax cuts and additional public investment. The group warned against complacency and any move that would add to business or labour costs, such as increasing the minimum wage. For a detailed breakdown of trends and commentary see below pdf.

Retail Ireland Director Thomas Burke said: "Ireland is uniquely exposed to Brexit's chill winds. Consumer confidence has fallen back, after months of strong growth, and retailers say positive momentum has slowed in recent weeks. Sterling's sharp fall has intensified competition from Northern Ireland and UK online retailers. While domestic retailers are moving quickly to adapt to the new environment, the government must also take decisive steps in Budget 2017.

The Retail Ireland Monitor points to positive trends in the first half of the year, with the domestic economy showing continued recovery. However, price-sensitive shoppers and intense competition have kept prices down. This has made cost recovery a very difficult proposition for Irish retailers in recent months and has limited the scope for retail investment. Currency fluctuations have also raised increased uncertainties and risks around hedging strategies over the coming period. These pressures look set to continue.

Retail Ireland said the upcoming budget should:
  • Continue to ease tax burden on Irish consumers: Ireland has one of the highest marginal tax rates in Europe and it kicks in at earnings below the national average. This entry point should be increased in line with wage growth.
  • Establish a Town Centre Fund: While retail activity has picked up, vacancy rates in key towns and cities remain high. The growth of online shopping along with under investment in the public realm, street scape and shop fronts have reduced footfall in key shopping districts. A competitive tendering process for towns and cities around the country to access funding to support the regeneration/development of their town/city is required.
  • Keep labour costs competitive: Given the labour-intensive nature of retail, the recent recommendation by the Low Pay Commission to increase the National Minimum Wage will, if accepted, further increase labour costs at a time of heightened competitive pressure. The proposed increase follows a 6% rise earlier this year.

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 6.5% versus Q2 2015, while volumes rose 1.9% when compared with the same three months of 2015. Diesel continues to outperform unleaded fuel as consumers continue to switch away from the traditional big seller.
  • Department stores: Total Q2 values and volumes were up 1.6% and 3.2% versus last year; however Dublin city centre stores performance was down on other areas as a result of lower footfall due to city wide roads works.
  • Pharmacies: The pharmacy sector grew by 4.2% in value terms and 4.9% in volume in the second quarter of the year– reflecting both the price competitiveness of the sector and reductions in the reimbursement costs of medicines. Over the counter medicines performed well due to high hay fever incidence with gifting categories up also on the back of Father’s Day in June.
  • Fashion and footwear: Q2’s total value fashion and footwear stores sales were up 5.8% on 2015, with volumes climbing 7.4% over the same period despite weakness in some traditionally important tourist markets.
  • Books and magazines: The books, news and stationery market has softened considerably in the second quarter of 2016 with year to date value growth declining from 7.7% at the end of March to 4.2% by the end of June.
  • Supermarkets and convenience: The value of sales fell in Q2 with intense competition keeping prices down. There was evidence of a move up the product value chain however, with increased sales in convenience formats.