Retail Ireland Monitor. November Building our future with confidence. Brought to you by

Transcription

1 Q3 November 2017 Retail Ireland Monitor Building our future with confidence Brought to you by

2 Confidence the key to a strong finish to 2017 Despite an uncertain external environment, 2017 has proven so far to be a relatively strong year for the Irish retail sector in terms of top line performance. On the surface the numbers are encouraging. According to the Central Statistics Office (CSO), sales values have grown by 3.7% in the first three quarters of 2017, and while not always the greatest benchmark of performance, volumes have been even more buoyant, growing by 6.9% in the same period. While certain categories are undoubtedly performing better than others, overall the data would suggest that most retail categories have seen an uplift in performance in the first nine months of the year. When we consider the year on year performance, the picture is even more positive, with the CSO suggesting growth of 4.8% in sales values and 8% in volumes. And yet there remains an air of trepidation within the industry despite this positive data set. So, what is driving this sense of nervousness within the Irish retail industry? It would be overly simplistic to suggest that this cautiousness amongst retailers arises from the scars of previous boom bust cycles. The answer is certainly more nuanced than this. Retailers are a pragmatic bunch, and while they recognise the growing sales at one end, their concern lies at the other end. Growing input costs over the course of the last two years or so, have largely led to the erosion of any benefit gleaned from this growing turnover. In that period retailers have seen rents return to pre-crash levels in prime retail locations, labour costs continue to grow as staff pressed by growing personal costs in areas such as rent, childcare and utilities inevitably seek recompense from their employer. The State has also played a significant role in driving these input costs. We have seen the National Minimum Wage increase by 7% since January 2015, we have seen increases in the energy PSO levy and we have seen no meaningful action to tackle rising rents in urban areas or growing childcare costs that are driving these growing pay claims. All of this has led to a certain feeling of having to run to stand still amongst Irish retailers. A sense that retailers are increasingly moving a greater number of boxes, but seeing little or no increased return from that activity. A disheartening daily grind. But Irish retailers remain a positive bunch. They look forward to the approaching Christmas period with optimism and that confidence will be key to a strong finish to the year and a strong outturn for 2017 for so many. Maintaining confidence amongst Irish consumers will also be crucial to realising this positive ambition for the sector over the crucial Christmas period. Consumers have remained resilient over recent months despite the continued negative mood music surrounding issues such as the potential impact Brexit will have on the Irish economy. That confidence has wobbled on occasion and this has been reflected in many of the consumer confidence indicators, which if viewed in isolation, resemble the heart monitor of a very ill patient. If we look at the longer-

3 term trend however, consumers remain positive about the future and this is most likely due to the continued strong performance of the Irish economy. There is a sense that things are getting better for them individually. The change is not dramatic, but the trend is upwards, and this is reflected in spending patterns. Retailers will hope that this emerging positivity will be carried into Christmas 2017, and that consumers can spend a little more freely than in recent years. Employers are also adding to this positivity, with many planning on awarding pay increases in This is manifest in recent Ibec research which reported that 75% of employers surveyed intend on awarding pay rises in Allied to tax cuts from Budget 2018 which will be realised in January, consumers can have a legitimate expectation that they will have greater levels of disposable income in 2018, giving them greater spending power. All this feeds into a more positive consumer outlook and growing consumer confidence. Good news for the retail sector. But confidence is both brittle and intangible, and can be lost quite quickly. Retailers know this better than most, and it is this dark cloud on the horizon that means retailers remain cautious and reluctant to look too far ahead. Challenges remain, and the negative headwinds have not all dissipated, but we must move forward with confidence that these challenges can be overcome, and the resilience shown by the sector in recent years can be rewarded in the final quarter of this year and into next. Everyone has a role to play in nurturing this confidence, government in helping improve the environment for consumers and retailers alike, but also retailers in highlighting the many positive aspects of the sector. We must become better at telling the story of the Irish retail sector. At highlighting the modern, dynamic outward looking sector that we have here in Ireland. Better at explaining the positive initiatives retailers engage in on a daily basis in every part of the country. The community based initiatives, the staff training, development and further education programmes delivered, the in store and online technological advancement of the sector in recent years, the world leading levels of customer service we deliver daily, the cutting edge, global best in class retailers who call Ireland home. We must become advocates for our sector, champions for our industry. A challenge for us all as we face into the busy end of year period. Thomas Burke Director thomas.burke@ibec.ie

4 Value of Irish retail sales as at September 2017 Value Q Q Aug 2017 Sep 2016 Supermarkets and convenience stores Department stores Specialised food and drinks stores (grocers, butchers, fish mongers, off-licences, bakeries, etc.) Fuel (including petrol and diesel) Pharmacies (including medicines, beauty and cosmetics) Fashion, footwear and textiles stores

5 Q Q Aug 2017 Sep 2016 Furniture, lighting and homewares stores DIY and hardware stores Computers, electrical and electronics stores Books, newspapers and stationery stores Other non-food specialised stores (music, toys, garden centres, sports, jewellers, etc.) All retail sales (excluding motor sales and bars)

6 Volume of Irish retail sales as at September 2016 Volume Q Q Aug 2017 Sep 2016 Supermarkets and convenience stores Department stores Specialised food and drinks stores (grocers, butchers, fish mongers, off-licences, bakeries, etc.) Fuel (including petrol and diesel) Pharmacies (including medicines, beauty and cosmetics) Fashion, footwear and textiles stores

7 Q Q Aug 2017 Sep 2016 Furniture, lighting and homewares stores DIY and hardware stores Computers, electrical and electronics stores Books, newspapers and stationery stores Other non-food specialised stores (music, toys, garden centres, sports, jewellers, etc.) All retail sales (excluding motor sales and bars)

8 Category analysis September reports best growth rate in nine years for supermarkets and convenience stores Supermarkets and convenience stores are now growing in both volume and value across one, nine and twelve-month horizons. Whether you look at the monthly movement, the movement for nine months, or the annual percentage change, volume growth continues to lead value growth, but this gap declines as the time line shortens with the gap for September itself only 0.3%. With the Consumer Price Index continuing to show food and take-home alcohol deflation, these figures suggest shoppers are now trading up rather than taking the savings. Overall the growth rates in the September report are the best in nine years. Food retailing is finally beginning to recover the losses of recession. Emerging beauty brands drive growth in Q3 Department stores reported a strong quarter three, with momentum building now that the price gap with sterling has narrowed or closed completely. Total sales values grew by 0.9% and total sales volumes climbed 5.4% compared to the same quarter in The beauty business remains flat, with declines in traditional beauty brands being balanced by strong reactions to new emerging brands. Dublin Department Stores are looking forward to the ending of traffic disruptions with the upcoming opening of Luas Cross City in December. Fuel consumption impacted by more efficient vehicles in the Irish fleet The fuel category saw total quarter three values and volumes up 3.8% and 0.5% respectively, compared to the same period last year. Average price at pump increased by two cent including VAT for both unleaded and diesel in the period from the end of June to the end of September On a year on year comparison, average price at pump increased significantly, circa 7% in both grades, in the year September 2016 to September When looking at total fuel consumption, quarter three is again marginally down compared to quarter three 2016, as electric vehicles and hybrids now account for 4% of vehicle sales in Ireland.

9 Category analysis Pharmacies continue to be impacted by low prices in Q3 The third quarter of 2017 remained a challenging environment for the pharmacy sector. Total sales values grew by 5.6% compared to the same period last year, while total sales volumes climbed 8.9% versus quarter three The deflationary environment continued this quarter, particularly impacting core toiletries and some beauty products. Healthcare had a solid third quarter and seasonal related categories also showed good performance. Athleisure and training shoes keep clothing category in good shape The fashion, footwear and textiles stores had a mixed month in September, as total sales values decreased by 1.6% compared to the same month last year and total sales volumes increased by 2.8% over September Women s luxury accessories continue to be a key sales driver, along with athleisure, training shoes, and menswear. As we enter the pre-christmas shopping season this category of retail is likely to see increased competition from online UK and US shopping platforms due to the strong euro. Sales of home accessories and furniture continue to outperform other retail categories Overall a very strong performance in the furniture, lighting and home accessories category in quarter three. Total sales values increased by 10.4% and total sales volumes grew by 16.1% compared to quarter three The furniture, lighting and homeware category continues to be the best performing category in Demand for home accessories and furniture is likely to continue in 2017 and into 2018, due to the retention of the Help-to-Buy Scheme for first times buyers in Budget 2018, and the ending of the Home Renovation Scheme in December 2018.

10 Category analysis Deals deliver strong Q3 sales for DIY and hardware stores Quarter three has been broadly positive for DIY and hardware stores. Total sales value growth was 5.7% higher than quarter three 2016, while total sales volumes climbed 8.8% over quarter three Core DIY and light building categories performed well this quarter, driven by strong demand and a growing level of consumer confidence. The decorative categories also performed well in volume terms, but the consumer was led with aggressive deals across wall coverings. A mild autumn kept gardener s shopping, resulting in a good performance in related categories. Electrical goods sales remain solid as prices continue to fall Computers and electrical goods saw total sales values grow by 3.3% and strong volume growth of 10.3% in quarter three, when compared to the same period last year. Despite positive sales figures, prices continue to fall within this category. The Consumer Price Index for September showed the price of home entertainment systems fell by 11.6%, cameras decreased by 5.4% and there was a 24.1% fall in the price of personal and home computers, compared to the same month last year. With UK inflation rising to 3% in September, Irish consumers seeking reductions in electrical goods in the upcoming pre-christmas promotional period should look to Irish stores and online platforms for their bargains. Positive back to school period offsets underlying value declines Overall, the books, newspapers and stationery category reported sales value and volume growth for the quarter of 1.4%, year on year, with modest underlying price inflation being offset by sterling exchange rate movements. A positive back to school period was a key factor in this performance, with education books and school stationery volumes holding up well. Underlying book volumes, excluding education, were softer, with an exchange rate related softening in pricing contributing to a value decline. Newspaper and magazine volumes continue to decline by 5%-6%, as consumers continue to migrate their media consumption to online sources.

11 Macro trends Labour market gains not reflected in retail employment Job creation and employment growth in the retail sector continues to be slow, despite improving domestic economic conditions. As the largest or second largest employer across all regions low growth rates are a concern for Ireland s largest private sector employer. Budget 2018 confirmed an increase in the National Minimum Wage to 9.55 in January 2018, a cumulative increase of over 10% since January This move will increase wage pressures for retailers at levels well above the NMW rate and will significantly impact the sector s ability to provide job opportunities to new entrants and grow employment in the regions. Index 2012= Employment Index Retail Employment Total Employment Politics and monetary expectations testing currency markets Unrest in Catalonia and the European Central Bank s decision to extend quantitative easing until at least September 2018, saw sterling strengthen against the euro at the end of October. The euro closed the month at 0.89GBP. Differing monetary policy approaches by the US and EU saw the euro fall to $1.16USD last month. As we enter the last quarter of 2017, some Irish retailers would welcome a stronger sterling and US dollar to deter online shopping with UK and US retailers. However, these are likely to be short-term reactions to monetary actions and political upheaval. Irish consumers continue to benefit from low prices CSO data for October shows that consumer prices fell by 0.3% compared to the same month last year. Further highlighting retailers continued use of discounting and promotional activity to drive sales. Total inflation for the year is forecasted to be 0.4%. UK inflation increased to 3%, its highest level in five-and-a-half years, last month. Increases in food, clothing and transport costs have pushed up UK inflation in recent months. Irish consumers planning shopping trips abroad or those seeking online bargains should be wary that price increases will reduce any potential currency gains. 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% Ireland Inflation United Kingdom

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