Tuesday 21 May 2019

70,000 retail jobs face axe in New Year

High costs, stay-away shoppers will force third of sector out of business

Jody Corcoran and Ronald Quinlan

The economic crisis will significantly worsen in the New Year, with a shocking 70,000 jobs now expected to be lost in the beleaguered retail sector alone.

Retail forms a huge part of the economy with almost 30,000 wholesale and retail businesses in the country.

The sector employs around 200,000 people -- over 9 per cent of all jobs -- and accounts for close to a quarter of consumer spending.

In the New Year, it is widely anticipated that a third of such businesses will close, an unprecedented development which will lead to up to 70,000 job losses.

Already this year retailers are reporting a 5 per cent drop in the volume of retail sales. But they fear the decline will dramatically increase over the next six to 12 months as consumers, during the recession, continue stay away from the shops in droves.

The spiral of decline is compounded by the rising numbers of people crossing the border to shop where they can take advantage of a 6.5 per cent VAT differential.

A leading retailer in Dublin yesterday told the Sunday Independent: "The Government seems intent on doing to the retail sector what it did to the construction sector.

"They refused to reform stamp duty, now they are refusing to reform our penal rates of VAT. Worse, they are increasing it.

"The symbolism of that move killed retail stone dead this Christmas. It will only get worse in the New Year."

Some retailers are also finding it difficult to obtain funding from banks to support expansion, while others are putting plans on hold as they gear up for what is expected to be an extremely difficult year ahead.

However, there are also indications that the strong rate of euro against sterling is not translating into lower import costs, an indication of the lack of competition in the import, distribution and retail sectors.

Selected branded grocery goods are up to 30 per cent more expensive in the Republic, compared to the North, and own brand goods up to 17 per cent more expensive here.

The cost of buying goods for resale is the single biggest cost incurred by retailers, accounting for three-quarters to four-fifths of their total costs. Operating costs, such as property, labour and utilities, account for up to 25 per cent of their total costs, or up to 6 per cent of the price differential north and south.

Government Minister, Conor Lenihan yesterday told the Sunday Independent that he feared there would be widespread job losses in the New Year, and in the retail sector particularly.

"Prices have been brought down even before Christmas. You see 50 per cent discounts in some shops, but they have to go down further.

"I expect when we go in to the New Year, it's going to be a very cruel world for anybody involved in the retail sector. A lot of jobs are going to go. A lot of shops are going to close," he said.

Mr Lenihan added: "To a certain extent we're overshopped, and there's going to have to be an adjustment. The prices are going to have to adjust downward, there's no way out of this."

The Finance Minister's brother rejected, however, the suggestion that Ireland's crippling VAT rate of 21.5 percent was a major contributory factor to the exodus of shoppers from the Republic north of the border to Newry, or to New York.

"We have to be honest about it. In many ways, Ireland is grossly overpriced. Prices here are ridiculous and people are voting with their feet. And it's not just because of VAT. It's nothing to do with that," he claimed.

"In the Newry case, you might ask why people are shopping there, and why people are shopping in New York. People are finding better value in Newry and better value in New York, and it's not about VAT regimes. It's predominantly about currency differences, but also about prices. Prices in Ireland have become unsustainable," he said.

The Government is being urged to undertake a review of competition in the retail-related import/distribution sector, to establish the extent to which a lack of competition is inhibiting the benefits of sterling weaknesses being passed on in lower prices to consumers.

Forfas, the National Policy Advisory Body, says the review should consider the potential for encouraging direct imports from source countries rather than indirectly through the UK, as is currently the norm.

However, the high cost of operating a business here is also contributing up to 6 per cent of the differential between prices north and south of the border.

Yesterday, a walk down Grafton Street in Dublin established that there are currently eight leases up for sale.

The annual rent per square metre in Grafton Street is €9,500, slightly more than it is on Bond Street in London (€9,446) and significantly more than on Oxford Street in London (€6,300).

Rents in Belfast and Manchester, for example, are also dramatically lower than in Dublin.

Forfas says: "The cost competiveness of retail operations should also improve over time as retailers have great leverage to negotiate more favourable lease terms."

Labour costs in Ireland are also much higher in Dublin. The salary of a store manager and shop assistant in Dublin is broadly similar to that in London, but markedly higher than that in Belfast and Manchester. The annual minimum wage here (€17,544) is also much higher than in the UK (€13,781).

Utility costs have also increased substantially in recent years.

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