Concern as retail sector ‘slumps into recession’

Third consecutive quarter of decline according to Retail Excellence Ireland, writes Samantha McCaughren

THE retail industry has entered recession, according to representative group Retail Excellence Ireland (REI).

The sector experienced a third consecutive quarter of decline in the first three months of 2017, the group said, citing its first-quarter ‘Retail Productivity Review’ collated in association with accountants Grant Thornton and research company GfK.

“Retail is continuing to contract which is in stark contrast to an improving economy and falling unemployment numbers. The figures for this quarter are most concerning,” said REI’s head of public affairs and communications Lorraine Higgins.

In total, 15 out of 20 sectors surveyed posted year-on-year drops in sales revenue, with children’s clothing down more than 10pc and footwear down almost 9pc, according to the report. However, retailers associated with the housing market performed relatively well.

January was almost 2pc behind 2016, with REI saying there was continued weakness in the January sales due to pre-Christmas discounting starting with Black Friday. Many retailers may also be impacted by a shift to online sales, often done through websites based outside of Ireland. The report was compiled from data provided by more than 4,500 retailers across the country.

“Overall 2017 paints a concerning picture as we continue to trend the wrong way. With the UK facing into an election, the impact of Brexit being felt, and hyper-intense competition remaining in most retail sectors, the outlook is a challenging one,” Higgins said.

“Undoubtedly, there is a real need for cost curtailment in the Irish retail industry, however with commercial rents remaining stubbornly high and in some cases rent increases being sought, the outlook is bleak. Some operators are being pushed to the edge and more retail industry failure can be expected,” she added.

The Easter break occurring in April rather than March had a negative impact, REI said, with grocery down 3.28pc year-on-year in the month of March. The jewellery sector was down almost 7pc in the quarter.

Grant Thornton partner Damian Gleeson said negative sentiment was growing. “This is due primarily to the current prevailing uncertainties such as Brexit, the Trump effect and increasing world security issues,” he said. “This negative sentiment is reflected in a significant drop in sales in such areas as footwear, children’s wear and jewellery.

“How long will it take for sentiment to recover we ask? The answer is unclear, but with shock tactics such as Prime Minister May’s General Election announcement this week, sentiment and thus, retail is unlikely to recover soon,” Gleeson added.

Sectors posting revenue increases included the garden sector, up almost 7.5pc, and the furniture and flooring sector which was up 3.71pc.

CSO figures for the sector state that in January retail sales including the motor trade were up 1.2pc year-on-year in terms of value, and down 0.3pc on the same basis in February.

Data for March is due to be published by the Government statistics body on April 28.

“Retail sales continue to remain erratic on a monthly basis and are still swinging back and forth, but the underlying trend is positive,” Merrion Capital economist Alan McQuaid said in a note circulated during the week.

“While most attention has been on robust car sales in the past couple of years, personal spending in other areas has generally picked up too over the same period and is becoming more broad-based,” he added.

“Personal spending growth is expected to slow further in 2017 on an uncertain global backdrop but still remain positive, boosted by a further fall in unemployment.” The early indications are that new car sales will be down on 2016, but other areas of expenditure will pick up.