Our beleaguered retailers need a helping hand, not further blows

POLITICIANS love small businesses. They appoint a token junior minister (John Perry), with special responsibility for their needs.

Ministers like to be photographed at ISME or Small Firms Association conferences/dinners. They empathise with family businesses and local entrepreneurs, citing them as the backbone of an enterprising ethos.

Rhetoric and sympathy falls short when it comes to governance. This hypocrisy is most evident in the retail sector, where 35,000 jobs have been lost over the past five years. A further 30,000 frontline jobs in local indigenous ventures are in peril through an accumulation of public policies.

Most forms of direct taxation are based on principles of being progressive, ie, the more profit or higher earnings you make, the greater the revenue that’s extracted. Hence tax bands penalise, while lower incomes are more leniently treated. The exception to this is rates on commercial property. Local authorities levy these irrespective of profitability, declining sales or even losses. Sharp hikes have been inflicted over recent years, way in excess of inflation. They represent the principal property tax in the state. Some councils are penal in their approach to commercial revaluations upon which rates are levied. Rates carry preferential creditor status. Campaigns for reform have run into the sand.

Higher overheads of taxation are only the beginning of retail strife. VAT is due to be hit with a 2% increase to the top rate to 23% in next month’s budget. The first impact of this will be to create a 3% differential between here and Northern Ireland and Britain&. This will create significant trade distortions. Brian Lenihan rapidly reversed a 0.5% similar increase between October 2008 and December 2009 due to diminishing returns. Cross-border traders are braced for sharp downturns in activity as consumers are prepared to travel even longer distances to seek out bargains. Times are too tight for consumers to wear the green jersey. Government logic in reducing the 13.5% rate to 9% is contradicted with this increase.

Crippling rents and excessive property costs have torpedoed business models of many retail outlets. Underlying insolvency of O’Brien Sandwich bars, Superquinn, Chartbusters, Xtravision, Arnotts, Hughes & Hughes, Golden Discs and thousands of independent stores have been caused by legal inflexibility of landlord and tenant legislation. This is massively tilted in favour of landlord property rights, disregarding economic realities. Original promises to abolish upward only rent reviews and establish ‘market rents’ have yet to materialise. Vested interests of banks, property developers and NAMA seem to thwart dire needs of shopkeepers. Because the state bailed these cowboys out, mandarins seek to protect their investment.

A previous administration decided to repudiate the ban on below-cost selling that had existed since the late 1980s. What’s happened since? Big operators have got bigger. This market share growth has been driven by loss leader items, especially alcohol. Ironically, the taxpayer is subsidising such drinks promotions through VAT clawbacks on booze sold below cost. This loophole undermines independent off-licence operators and expedites decimation of the pub trade. Tesco, Dunnes stores and larger convenience store groups are legitimately able to use taxpayer refunds on items which are sold at reduced value. Leaving aside dire social effects from an unsupervised youth drinking culture, legal frameworks facilitate unfair trading.

If combined effects of these public policies weren’t bad enough, worse prospects await beleaguered independent retailers. The leaked troika prescription from Berlin proved to be accurate in relation to government plans to relax the cap on hyper sized new stores. Minister for Environment, Phil Hogan, announced the Government’s intention to raise the maximum size of megastore to 4,000m² in Dublin and 3,500m² in the other four main regional centres of Cork, Limerick, Galway and Waterford. This represents an increase of 500m² from existing limits. Hello to Walmart, Asda and Costco at cheap greenfield sites with bargain basement costs and massive car parking facilities.

Retail planning guidelines have been in place since 2000. In the first seven years of their operation, mirroring the Celtic Tiger economy, total retail sales grew exponentially. Multiple operators soaked up most of this as their larger retail floor space and stronger purchasing power outflanked smaller independent retailers. The overall grocery store size limit was set at 3,000 sq m on a national basis. This did not deter new entrants such as Lidl and Aldi. Close scrutiny of multiple store sizes indicate that optimum efficiency for scale exists around 2,000 sq m. There is no evidence restriction limits on megastore sizes have caused excessive consumer prices. In fact, the dynamic of competition under the current regime has been extraordinarily intense.

A detailed comprehensive study by Goodbody economic consultants in June meticulously reviewed the history of planning guidelines, trends in retail sales, changes in structures of the retail sector, spill over effects in retailing, potential impacts of local monopolies and provided international comparisons. Ireland has comparatively less retail entry restrictions. Other states apply barriers to entry in retail distribution. Our regime was identified as having one of the least regulated retail sectors in the developed world. France apply strict store size limits. Austria, Belgium, Finland, Greece and Luxembourg apply significant regulatory barriers. There are more than 30,000 retail enterprises in the country. If it ain’t broke — don’t fix it.

THE conclusions and recommendations highlighted potential distortion of trade by large regional centres becoming magnets for long-distance weekly shopping. They found no substantial reason to abolish the current store sizes. While the latest proposals are still subject to consultation, the clear impetus for change comes from the IMF/EU overlords. Foreign technocrats don’t understand how inappropriate it is to rip the heart out of our main streets in towns and villages. Out-of-town hypermarkets kill footfall in urban centres. Forget regeneration of city centres and residential renewal, if we allow this proposed free for all.

Irrespective of government policy, the high street is facing serious attrition. The migration to purchasing goods and services online is relentless. Some sectors estimate internet traffic to be rising three to four per cent per annum. Travel agents used to be visible nationwide, airlines deliberately incentivised customers onto dot.com sales. Have you noticed the number of insurance companies that have developed direct online marketing? This could prompt circumvention of insurance brokers. Retail betting shops used to comprise 90% of gambling revenue, it’s now less than half due to online penetration.

Lip service about ‘Buy Irish ‘and ‘Local Heroes’ won’t butter many parsnips if we simultaneously undermine the basis of our grocery business and independent retailers. It’s time to cry halt to the pincer movements of punitive policies that are wreaking havoc among small shopkeepers. Restrictive onerous commercial rates, penal VAT rates, endless bureaucratic red tape, exorbitant rents, below cost selling and now heralding of hyper stores spell the death knell of many family businesses. In the run-up to the vital pre-Christmas trade, operators are clinging on by their frazzled fingernails. It’s time they were cut some slack.