No retail therapy in midst of a cash crisis
Consumers were loath to spend this summer, and the bad news for retailers is money will get even tighter, writes Louise McBride
Published 31/07/2011 | 05:00
THE summer sales, which will largely wrap up this week, have done little to ease the plight of ailing retailers. Last June was the 40th month in a row that retailers saw their sales dive, according to a report published by Retail Excellence Ireland (REI) last week.
The report, which expects the "relentless decline" to continue over the next few months, found that retail sales fell by about six per cent over the last year, with electrical and ladies' fashion shops particularly badly hit. There were more bleak figures to follow from the CSO, which found that hardware, paints and glass sales plummeted by about a 10th over the last year -- and that book shops and pharmacies have also taken a hammering.
With another harsh budget on the cards, recent increases in mortgage interest rates and stubbornly high unemployment levels, retailers aren't expecting their troubles to ease by the end of the year.
"We don't anticipate any pick up in sentiment in the coming months," says David Fitzsimons, chief executive of REI. "Many retailers will be forced to close their doors and more retail jobs will be lost throughout Ireland."
Alan McQuaid, chief economist with Bloxham Stockbrokers, says that despite the morale boost that followed the recent visits of Queen Elizabeth and US President Barack Obama, consumer sentiment fell back in June and "should remain fairly weak over the rest of the year".
"Households continue to grapple with high levels of personal indebtedness and the erosion of disposable income," says McQuaid. "With not much scope for a significant drop in the savings rate, consumer spending is likely to maintain the downward trend of recent years with declining disposable incomes being the main driver."
So how have some of the country's top retailers fared over the last few months -- and do they see any light at the end of the tunnel?
Shoe shop Korky's has seen its summer sales dive by about 10 per cent this year, according to John Corcoran, the company's managing director.
"Summer sales have been dropping off for the last three to four years," says Corcoran.
"They can be useful, but this summer the sales are not very profitable. They're just about getting rid of excess stock."
A pessimistic Corcoran says there has been no sign of a pick up in the retail sector in the last few months -- and he doesn't expect any improvement by the end of the year.
"We're not doing well," he says. "The upcoming budget can't be good news for retailers. I can't see things getting better over the next six months."
The main thorn in Corcoran's side is the high cost of shop rent. "Rents need to get back to realistic levels," he says. "It's hard to increase turnover now, so you have to look at your costs -- and the biggest cost for us is rent."
The chief executive of Clery's, PJ Timmins, believes the department store's summer sales could be up this year on last -- but he attributes that to a longer summer sale season than to any buying frenzy.
"We had to react to the visits of Queen Elizabeth and President Obama last May, so our summer sale started early," he says. "This year's summer sale has been longer and bigger than ever. That has boosted sales somewhat."
Timmins is a bit more optimistic about the future than most retailers -- though he acknowledges it will take time for consumer confidence to pick up enough to get people willing to spend money again.
"The consumer is saving too much money at the moment," says Timmins. "But there are a few confidence-building measures in place under the new Government. A lot of the adjustment and pain has already been taken. We're more than halfway through this problem (the economic downturn) and it's not going to go on for ever."
It will be another tough year-and-a-half for pharmacies, warns Cormac Tobin, managing director of Unicare DocMorris Pharmacy. "The next 18 months will be very difficult, with interest-rate increases and more stealth taxes and cutbacks," he says.
"People are already compromising their healthcare as they're very much cutting back on spending. There is a tremendous fall-off in spending in the last week of every month which shows that people are shopping to a budget."
Although Unicare DocMorris doesn't run summer sales as such, it has "constant promotions", according to Tobin.
"People are waiting for the promotions before they buy," he says.
"They will only spend money if something offers value for money -- or if a product will make their life a bit easier. Consumers are still in this petrified state of 'do I spend or not?' Unless we can solve this country's unemployment problem, there won't be an improvement for retailers."
CURRYS & PC WORLD
The visit of the Queen and Obama boosted sales at Currys and PC World last May -- but the uplift was shortlived, according to Declan Ronayne, managing director of DSG Retail Ireland, which includes electronics retailers PC World and Currys.
"People were more confident after the visits and that boosted sales around that time -- but sales have calmed down since," says Ronayne.
He believes it could be early 2013 by the time electronics retailers see any kind of an uplift. "There are no signs that things are picking up," says Ronayne. "With people still battening down the hatches in expectation of the December Budget, there will be no growth over the next six months.
"The Government needs to tell people what to expect from the Budget as early as it can. If it does this and gets certainty back into the economy, electronics retailers could see a recovery by spring 2012. Otherwise, they won't see a recovery until autumn 2012 -- or possibly early 2013."
DUBLIN AIRPORT SHOPS
Retailers in Dublin Airport are among the few to have noticed a recent pick up in sales thanks to the six per cent increase in the airport's passenger numbers in the first six months of the year, according to Mark Banchansky, retail strategy director with the Dublin Airport Authority.
Although Banchansky admits that retailing in the current environment "is not easy", he says that sales of cosmetics and skincare in Dublin Airport are up by more than six per cent.
"In certain categories such as skincare, makeup and fragrances, our retail trends are outpacing passenger traffic," he says. "New offers in fragrances are driving considerable business for both men and women."
THE KILKENNY SHOP
Survival is the name of the game in retail today, according to Greg O'Gorman, marketing manager of the Kilkenny Group.
"Profit was the number one priority before -- but now survival is the most important thing, with profit the number two priority," he says. "Retailing is changing from that perspective."
Like all retailers, the Kilkenny Group has taken a hit owing to the slimmer wallets of consumers. The average amount being spent by shoppers is down by between 10 and 20 per cent, depending on the store, according to O'Gorman.
"People have less money in their pockets," he says. "Where they would have bought a wedding gift for about €100 a few years ago, they're now buying one for about €75. People have budgets -- and they're sticking to them."
While O'Gorman says there is no sign of a pick up from Irish consumers, tourist trade is improving. "We have seen a little bit of a pick up in tourist footfall in visitor hotspots such as Killarney and Dublin's Nassau Street," he says.
Locals are more interested in buying Irish. "People are more conscious about supporting Irish businesses -- and where their money is going," says O'Gorman.
"Subconsciously, a lot of shoppers are supporting an Irish recovery."
THE BODY SHOP
The Body Shop is as regular a sight in shopping centres as it is on the high street. While there may be more people in shopping centres, this doesn't necessarily mean they are spending money, according to managing director Peter MacDonald.
"Shopping-centre owners will tell you there's more footfall -- but those people aren't carrying more shopping bags," he says. "People simply want to get out of the house."
To win over shoppers, retailers need to "help themselves" and "become more imaginative", according to MacDonald.
"I'm not a believer in massive discounting," he says. "We offer complementary facials and massages. We have found that it makes a huge difference to give people a good experience when they come -- without ringing a bell and saying you must spend money here. More often than not, customers spend money after that."
MacDonald admits, however, that the upcoming Budget will be a challenge. "Whatever will be taken out of the Budget will be negative in terms of the disposable income people have," he says. "But retailers have got to pull themselves up, figure things out and understand that it's a different environment."
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