The uphill struggle of Irish retail in the bust

A deep recession has reshaped the retail landscape and will continue to do so over the coming years. Casualties are anticipated, and the big-name stores have as much to fear as anyone, reports Kyran FitzGerald

RETAILERS resemble an exhausted boxer straight out of that ad for Uniflu. However, no magic potion will be on offer any time soon as the age of austerity continues remorselessly ever onward.

This year, consumer spending will contract by close to 4% and industry groups are predicting that there will be casualties, both Irish and international in the New Year.

Established names are struggling. The iconic Irish department store, Clerys, for example, has revealed losses of €2m in its latest accounts and is warning of job losses.

Arnotts announced an after tax loss of €295m in January. The losses are attributable to a major property investment in the now abandoned Arnotts Quarter off O’Connell St.

The group, now jointly owned by Anglo Irish and Ulster Bank, is engaged in a major revamp of its Henry St store in central Dublin under chief executive, Nigel Blow.

The chill winds have been blowing elsewhere.

GROCERY SECTOR

The grocer Superquinn went into receivership in July, only to be taken over by the Cork group, Musgraves — a sign that in the trail of destruction amid near depression conditions, you have regeneration.

The grocery sector has escaped the worst of the fallout. However, customers are chasing value hard, hence the rapid emergence of German discounters, Aldi and Lidl.

This year was Aldi’s year, with growth of over 25% being recorded. The German share of the market is now 13% — much of which was taken from Superquinn, with turnover in that group down from over €700m to less than €500m.

However, Musgrave Group is also in expansion mode, having husbanded its resources well. Operating profits at €75m are well down on the 2005 and 2006 peak of over €100m a year, but the group has eliminated debts of €325m, allowing it to invest €250m in the acquisition of Superquinn, keeping this major player out of overseas hands.

The group’s experienced chief executive, Chris Martin, is engaged in a rollout of Irish brands into the group’s expanding British businesses, while supervising the integration of the Superquinn and SuperValu businesses.

In an interview with Shelf Life magazine, this month, Martin acknowledged that Musgraves will have to work hard to bring some of Superquinn’s rather tatty stores up to scratch.

Any review of the grocery sector would not be complete without a reference to Dunnes Stores, which remains resolutely media shy, and cash generative, under Margaret Heffernan. Dunnes remains as eccentric as ever. Yet another trip to the Four Courts would appear to have left it about €35m out of pocket as a judge ruled that it would have to pay over this sum to the state to meet its plastic bag levy commitment.

But Dunnes Stores has held on to its market share in the face of the advance of the foreigners, its performance probably understated given its much lower rate of new store openings.

THE HIGH STREET

Irish retailers must now cope with a burgeoning online offering, combined with the rapid spread of the Tesco Extra format.

According to David Fitzsimons, chief executive of Retail Excellence Ireland, Tesco Extra may be good for consumers but it is displacing far more jobs than it is creating.

“Labour accounts for 5.8% of turnover in Tesco Extra, whereas in the firms it is displacing, labour is around 14% of turnover.”

Independent pharmacies, telco retailers and opticians are in the line of fire. Fitzsimons predicts that the Irish high street will go the way of high streets elsewhere, with about three major players holding 70% of a series of markets from books to music to pharmacy, to name but a few. The Musgrave takeover of Superquinn means this is already the case in grocery.

This process is being assisted by sky high legacy rents, which are hitting independent Irish retailers hardest.

A recent REI survey revealed that the average annual rent born by member stores was €159,000 a year, making a total rent roll of €680m.

Just €27m in gross rent reductions have been agreed, an average of €6,300 a year.

Retailers have reacted with fury to the Government announcement that for legal reasons, it cannot move to scrap retrospectively, existing upward only rental arrangements.

The fact that the state run NAMA is the country’s largest landlord is of relevance. The Government also feared further stagnation in the commercial property market if it stuck to its election manifesto commitment.

However, high rents are combining with heavy commercial rates and rigid policies on parking to drive businesses and shoppers into malls, or out of town.

Some high street operators continue to thrive, no more so than Penneys/ Primark, where revenues across Europe are up 10% this year. Run for almost 40 years by the same four-person management team from Dublin’s Mary St as part of the Weston family stable, Penneys is a retailing powerhouse.

Craft goods are being promoted through pop-up shops, the high street retail phenomenon of the past two years.

This year, 190 suppliers exhibited at the annual craft and design fair at the RDS. “Peoples’ price points are lower, but there has been a surge in sales,” says Karen Hennessy, chief executive of the Craft Council of Ireland.

The exhibition was the best in three years, she says.

New entrants to the world of craft production and retail include many displaced property industry professionals, a trend also noticed by Des Vallelly of Irishvillagemarkets.ie.

Vallelly runs a number of lunchtime food markets around Dublin. He believes that established markets are doing well as people opt for food costing €4 to €7 instead of paying €10 to €12 for lunch in restaurants.

Tough conditions mean expansion in the number of markets has altered. However, Bord Bia estimates there are now 80 nationwide, including 21 in Cork. The markets are a big help to producers allowing them to sell direct to the public.