Northern lights show us the way
Businesses in the Republic should stop complaining and follow Newry's lead in wooing shoppers
Sunday November 29 2009
IT WAS probably a teeny bit unfair to have a go at public sector workers who made use of the one-day strike to go shopping in Newry.
We don't know how many Government workers were actually in the queues, and anyway, who wouldn't do the same? But I wonder how many of them looked around and thought, "Right enough, we've a problem."
Nor do we know if anyone in the Swedish group H&M thought, "Right enough, we have a problem," when they saw the publicity surrounding the prices of their Jimmy Choo shoes (which, I am told, are a popular item).
It appears these once hugely expensive bits of footwear are now on sale in the European chain at €99 for a typical pair -- or the equivalent of €90 if you live in the UK. But they will cost you €129 if you are foolish enough to buy them in a H&M store in the Republic.
You may not have much choice if you really want them, because they are not available in the Northern Ireland stores.
It might be stretching things a bit far to wonder if H&M was alert to the possibility of Southern shoppers deciding to save €40, but its actual explanation was nevertheless instructive.
After the usual gobbledegook about taxes and transport costs, a spokeswoman in London said prices charged took into account "the overall market situation and cost level in every country".
This is the way big multi-national companies work. They charge what the market will bear, and the Irish market, until very recently, would bear a very great deal. But H&M may be a bit behind the curve, as they say. Its Irish shops seem to have been alone in not having queues for the cheap Choos. It is hard to think of a more striking sign of how much things have changed.
H&M, which after all is a foreigner, may not be the only one behind the curve. Many local businesses also seem to have difficulty grasping what has happened, and what they will have to do. In this case, both the Southern shopkeepers glumly surveying their quiet stores, and the shoppers spending borrowed money outside the State, have a lot of hard thinking to do.
The fundamental reason for the dear shoes, and a lot of other dear things, can be found in this month's CSO statistics on the state of Irish households. Their average disposable income last year was €49,000. That is an awful lot of purchasing power -- the highest in Europe. Of course we are going to be charged more, if we have that kind of money to spend.
Income and prices cannot be separated, although the relationship varies from country to country.
A simple example was the furore over the price of drink some years ago -- a time when it was impossible to find standing room in almost every pub in the land. Why should vintners charge less in such circumstances?
They were, however, slow to realise that this was what they would have to do when the pubs began to empty. Cutting prices means cutting costs and profits, and is never easy. The alternative, though, may be cutting everything, through closure.
For many businesses, that fate is now unavoidable. Others can save themselves, in different form, but not if they sit around waiting for things to change.
Some seem to have started. The electrical retailer DSG, which includes Currys and PC World, said last week it had taken "all the right actions" in Ireland including a "more aggressive trading position" that enabled it to gain market share. I think that means cheaper prices.
DSG, and everyone else who sells to the public, has to recognise that the €49,000 disposable income figure was ludicrous -- based on high wages and low taxes paid from a property bubble and a foreign investment boom. It is going to fall significantly.
The public sector strikers are trying to minimise the fall in their particular incomes, but the more they succeed, the more someone else's income will fall. The end result for business trying to sell us things will be much the same.
Those Jimmy Choo prices give a glimpse of real exchange rates, in the same way the Economist magazine's survey of global Big Mac prices does. The shoes were 9 per cent cheaper in the UK than the eurozone generally -- hardly the sign of a grossly undervalued sterling.
Purchasing power points the other way: that sterling was grossly overvalued during the banking bubble and may not be far off fair value to the euro at current levels.
It is not that sterling is cheap, but that the Irish "currency" is dear, because a euro here buys far less than it should.
Businesses in the Republic should not complain about Newry. Newry is telling them what they must do.
- Brendan Keenan
Originally published in
