Collapse In The Value Of Sterling Threatens Recovery Of Retail Sector In Ireland

Retail Ireland has warned that a confluence of external pressures could derail the fragile recovery in the Irish retail sector during the crucial Christmas period.

At its annual conference in Dublin yesterday, the representative body for Irish retailers warned that the immediate pressure of the sterling collapse risks driving consumers north of the border and online. It stressed that the government’s budget must address the Brexit challenge head on and support growth. Retail Ireland called for a reduction in the “punitive tax burden” on consumers to support the domestic recovery and ensure no measures add to already high business costs. It added that labour costs must reflect the needs of business to compete successfully in a highly competitive market.

Addressing the Summit, Retail Ireland Director Thomas Burke, said: “The retail sector is only getting back on its feet following the crisis years. Total employment in the economy is 10% higher than it was four years ago, but retail employment is only 2% higher. This emerging recovery is now vulnerable. Despite intense retail competition and falling prices, Brexit has unnerved consumers and currency pressures risk sending shoppers north of the border or online. Retailers are doing everything within their power to facedown the challenge and ensure prices stay low, but the government has a crucial role to play.”

Burke also highlighted the increasing challenge of intense online competition, which has been heightened by currency movements. “Online retail is an increasingly important channel, with over 50% of Irish consumers having made an online purchase in the past 12 months. In 2015 the total value of online purchases by Irish consumers was €9.1bn, with clothes, sporting goods and books the most popular items purchased.

“The Irish online retail offering has improved significantly over recent years on foot of major investment. Despite this, over 70% of total online sales revenue leaves the State. The emergence of other sales platforms in recent years such as click and collect and home delivery has greatly increased convenience for consumer, but has proven logistically and financially challenging for Irish retailers. Investment in these platforms has not been easy with margins tight and capital investment opportunities constrained by limited credit availability. The sector is now firmly focused on this challenge.”

NAM Implications:
  • Where at: This is really about cross-border price differentials driven by falls in the £-€ exchange rate. Whilst local taxation may play a part, the real answer has to be reduction in retail profitability via shelf-price cuts. The 70% online out-of-state sales drift will continue until local offerings match available alternatives, at least.
  • Where headed: Ideally, a government would impose cross-border tariffs to protect local interests, but not possible under EU regulations.  Therefore anticipate continued drift to NI both on and off-line.
  • Effect on you: Those suppliers responsible for sales to ROI & NI will experience more intense competition from local brands in ROI and an inevitable drift of business to NI.
  • Action: Re-assess relative appeal of your offering in both markets, factoring in a 10% price differential, minimum, and re-balance your investment strategies to reflect new realities.