With VAT receipts and consumer confidence up, Ireland's retailers are beginning to see the very first signs of a possible recovery after the trauma of the post-Celtic Tiger apocalypse, writes George Garvey
It has been a truly awful five years for the retail sector. Since peaking in 2007 the value of retail sales has fallen by over a quarter. Even when motor sales, a notoriously volatile sector, are excluded the value of retail sales has fallen by 18pc.
As the value of retail sales collapsed a slew of retailers buckled under the strain. Hughes & Hughes, Golden Discs, Xtra-vision, O'Brien's Irish Sandwich Bars, Superquinn and most recently Peats are among the well-known Main Street names to have either been forced to seek protection from their creditors or to have disappeared altogether.
And the word in retailing circles is that several other well-known names are struggling, so don't be too surprised if more retailers bite the dust in the months ahead.
The failure of so many well-known retailers has had a major impact on employment levels in the sector. Employers' organisation IBEC estimates that 50,000 retail jobs have been lost since 2008.
That still leaves 240,000 people working in retail, making it by far the largest employer in the domestic economy.
Irish retailers were hit by the economic equivalent of a perfect storm. Not alone did sales collapse, most of them were tied into expensive leases with upward-only rent reviews (see panel).
This lethal combination has meant that rents have risen from an average of 10pc of retailers' turnover to 20pc of sales over the past decade, according to IBEC.
When the government increased the standard VAT rate by 2pc to 23pc in last December's budget there were widespread predictions that this would lead to a further sharp drop in retail sales. So has this in fact happened? So far at least the signals are mixed.
In December 2011 retail sales were actually 2.7pc higher in value terms than for the same month in 2010.
However, this can almost certainly be explained by the fact that December 2010 was one of the coldest months ever recorded in Irish meteorological history while there may also have been an element of shoppers stocking up in December before the VAT increase came into force at the beginning of 2012.
Retail sales resumed their decline in the New Year with a 4pc fall being recorded in January and a 0.1pc fall in February, according to the latest figures from the CSO.
The New Year also brought a fresh rash of retail failures with the UK chain La Senza closing its Irish shops in January while UK computer game retailer Game closed its Irish stores last month.
The carnage on the Main Street continued into April when Irish electrical retailer Peats went into liquidation resulting in the immediate closure of its 11 stores and the loss of another 75 jobs.
The outlook for the domestic economy, upon which retailing depends, remains grim. A survey published by the Irish League of Credit Unions this week found that almost half of all people surveyed had less than €100 per month spare cash after they had paid all of their bills.
None of these people are going to be rushing off to the shopping malls any time soon.
The Central Bank is now forecasting that Irish GNP, basically the domestic economy, will shrink by a further 0.7pc in 2012, making it the fifth successive year in which GNP will have fallen, followed by growth of just 1pc in 2013.
However, while the economic outlook remains gloomy and sales are still falling, all is not doom and gloom. After recording one of its steepest-ever falls in December, the KBC Bank/ESRI index of consumer confidence has now risen for three successive months.
The VAT receipts for the first three months of the year are also bucking the pessimistic forecasts made by many retailers when the rate increase was announced at the time of the budget last December.
While the 2.9pc increase in VAT receipts recorded in January largely reflected transactions conducted in December before the VAT rate went up, the February and March VAT receipts also grew strongly, with March VAT receipts coming in 10.3pc ahead of the budget day target.
So are the economic forecasters and the CSO painting an excessively gloomy picture? Has retailing at least bottomed out?
"The worst of the job losses are probably behind us but there is still more austerity to come, beginning with next December's budget. While we won't see the vertical declines which we experienced over the past few years people are still scared," says KBC Bank economist Austin Hughes.
The detailed consumer confidence index data found that while consumers were slightly more optimistic about the prospects for the economy as a whole, they remained deeply pessimistic about their own likely future incomes and were postponing all unnecessary purchasing decisions.
While the somewhat better-than-expected VAT receipts in February and March do hold out a glimmer of hope for retailers, the figures need to be treated with a certain caution.
As Stephen Lynam, director of IBEC's Retail Ireland offshoot, points out, retail sales make up only about half of the transactions which are liable for VAT with utility bills, the hospitality sector and professional fees accounting for most of the rest.
What this means is that, even if the VAT rate goes up, people still have no choice but to pay their gas and electricity bills. Likewise if you are involved in a legal case you have no choice but to pay your lawyers' bills, regardless of the VAT rate.
Meanwhile, at least in part due to the Government's decision last year to cut the VAT rate on hotel rooms and restaurant meals to just 9pc, hospitality has been outperforming most other sectors of the domestic economy.
Although Irish retailing has endured the economic equivalent of a nuclear winter there is now some room for cautious optimism.
While a further fall in consumer spending, about 2pc, is expected in 2012, the consensus among retailers is that we are now approaching the bottom, albeit at a very low level.
During the boom years when we spent money like it was going out of fashion the household savings rate fell to just 2pc.
Now, after the bubble has burst, we have gone to the opposite extreme with the household savings rate having soared to 14pc as even people who still have money, terrified of further tax increases and the prospect of losing their jobs, hoard every cent.
The key to any retail recovery is persuading shoppers that it is safe to start spending again. While no-one expects a return to the go-go days of 2007 any time soon, even a decline in the Irish household savings rate to the German level of 8pc would unleash hundreds of millions of extra retail spending.
However, even when that does eventually happen, traditional "bricks and mortar" retailers will find themselves facing a formidable new foe -- the internet.
While detailed figures are not available for Ireland, in the UK the Office of National Statistics estimates that 8pc of retail purchases in Britain now take place online.
While the proportion of Irish retail sales being conducted over the internet has not yet reached UK levels it is growing rapidly.
Marks and Spencer has recently unveiled a major revamp of its Irish website while Eason and Tesco are among the Irish-based retailers to have made major investments in their on-line operations.
The truth is that they had very little choice. As more retailing migrates on-line it is very much becoming a case of traditional retailers having to launch their own websites or else see their business disappear altogether.
Indeed the loss of business to the internet was one of the reasons cited by Peats chairman Ben Peat for the collapse of his firm.
So what does the future hold for Ireland's embattled retailers?
"People do not have a significant excess of cash. The scale of the decline of the past few years will not be repeated but things will remain difficult for retailers. We are going to find more retailers deciding that they don't have a future," predicts Mr Hughes.
Mr Lynam is slightly more optimistic. "Retailers have adjusted their whole business model. I do believe that we are coming to the end of the domestic recession," he says.