Business Irish

Tuesday 19 September 2017

Stores discount prices to shift stock as shoppers desert main street to buy online

Poor Christmas sales hit shops as migration to web purchases accelerates

Fewer people took to the high street, resulting in a poor Christmas trading period for many shops (Bloomberg)
Fewer people took to the high street, resulting in a poor Christmas trading period for many shops (Bloomberg)
Dan White

Dan White

The migration of shoppers online and the collapse in sterling meant that most Irish retailers had a relatively poor Christmas.

The end-year exchequer returns, which were published on Wednesday, pointed to severe problems in the retail sector.

While overall full-year tax revenues were 1.4pc ahead of target, VAT revenues were 3.4pc behind target, with the shortfall being made up by better-than-expected Corporation Tax, Income Tax and Capital Gains Tax receipts.

The problem with VAT got worse as the year progressed, with December VAT receipts being a massive 19pc behind target.

As VAT is collected a month in arrears, last month's figures reflect VAT paid by customers in November 2016.

The situation is unlikely to have significantly improved last month.

On Thursday, the Central Statistics Office (CSO) published its November retail sales index. This showed that, although the volume of non-motor retail sales rose by 4.9pc compared to November 2015, the value of these sales increased by only 2.2pc.

Meanwhile, the latest ESRI estimates are that Irish GNP growth hit 8.5pc in 2016. Even when the distortions resulting from 'Leprechaun economics' are filtered out, it still estimates that private consumer expenditure, traditionally the main driver of VAT revenues, rose by 4.4pc last year.

Under normal circumstances retail sales and VAT revenues should have increased by a similar percentage.

The CSO figures provide strong evidence of heavy discounting by Irish retailers. A 4.9pc increase in volume as against a 2.2pc increase in volume translates into an average price reduction of 2.5pc. Irish retailers are having to cut prices to shift stock.

However, the main reason that such an enormous gap has opened up between VAT receipts and domestic demand is the rise and rise of the online retailers.

David Fitzsimons, of Retail Excellence Ireland, estimates that Irish consumers now spend €12bn online annually, of which 75pc or €9bn is fulfilled overseas.

If this business were being done with Irish-based retailers it would generate up to €1.7bn more VAT for the exchequer, boosting annual VAT receipts by more than 13pc.

Migration to online retailing is accelerating.

Courier firm DPD reported a 30pc increase in the volume of parcels imported into Ireland from the UK over Christmas, while parcel collection service Parcel Motel reported an 80pc increase in volumes.

With Irish consumers already acclimatised to shopping online, the collapse in sterling - down from €1.35 to €1.17 over the past year - has provided a further spur to doing their shopping with an offshore internet retailer such as Amazon, rather than a traditional bricks and mortar retailer on their local main street or shopping centre.

"We are leaking huge spend into the UK," said Fitzsimons.

A combination of legacy issues such as high rents and more recent problems has resulted in a slew of well-known Irish retailers either entering examinership in order to repudiate onerous boom-time leases, or else disappearing altogether.

For example, Debenhams went into examinership in May 2016.

Sunday Indo Business

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