Retail sector hit by weak sterling

THE ongoing sterling weakness will pose a major threat to the retail sector in the run-up to Christmas with cross-border shopping now costing the economy €430 million a year.

The opening of IKEA however, meant furniture and lighting sales surged 26% in August, in a month when overall retail sales were down 9% compared to the same month last year.

Latest figures from the CSO show there was a monthly decrease of 1% in retail sales in August. If car sales are excluded, the volume of retail sales fell annually by 5.2% and the monthly change was -1.8%.

Retail Ireland director Torlach Denihan said the North, with a population of about a third of the Republic now accounts for almost half of all alcohol sales on the island. “It’s not that they drink more in the North, it’s because people are driving there to buy their alcohol,” he said.

Retail Ireland is calling for the excise levels on alcohol to be reduced by 20% because it said alcohol is the single biggest motivation for cross-border shopping trips.

It also wants VAT reduced to 18% saying the public is saving 12% of disposable income and it needs to be encouraged to spend to create employment and give the economy a boost.

The CSO figures show there was a significant decrease in bar sales in August, which were down 13% annually. Also clothing and footwear sales fell 4% and sales in non-specialised stores, including supermarkets, were down 3.2%.

The surge in furniture sales, however, provided “clear evidence” of pent-up demand in the sector in anticipation of IKEA’s opening and helped prevent a larger decline in retail sales in the month, according to Ulster Bank economist Lynsey Clemenger. She said though August was a weak month for the majority of retail sectors, there were continuing signs of stabilisation in the sector.

“The level of the total retail sales index hit its low point in January and has since risen by almost 12%, albeit this is coming from a position of extreme weakness driven by the massive slide in car sales at the start of the year. More importantly, the core retail sales index looks to have bottomed in April and has essentially moved sideways since,” she said.

Alan McQuaid of Bloxham Stockbrokers said the decline in consumer expenditure since the beginning of last year has been driven by a combination of a fall in disposable income arising from a drop in employment income, and a rise in incomes taxes and levies.

“In addition, the erosion of personal wealth due to declining asset prices, together with increased uncertainty as reflected in the indicators of consumer confidence, has prompted an increase in precautionary saving by households,” he said.

As things currently stand, Bloxham is forecasting an overall decline in personal spending on goods and services this year of 7.5% following an average decline of 1% last year. A further fall of 3% is projected for 2010.