Arnold Dillon: Shop owners can have some optimism, but recovery has  challenges

Unlocking households' spending power will be key to strong economic rebound

Traditional shops should get the chance to recover, but 2021 is likely to bring more challenges.

The next few months will not be easy.

While the rapid roll-out of an effective Covid vaccine provides hope of a return to normality, far-reaching new Covid restrictions heap further pressure on many businesses already struggling to survive.

Parts of the retail sector - such as grocery, DIY and electrical - have seen increased demand since last March. 

People are cooking and eating more at home, doing up their gardens, and spending more on home entertainment and technology.

However, many high street retailers will find it difficult to recover from the major financial losses incurred during lockdowns. 

The ongoing lack of office workers and tourists in key retail districts is compounding the problem.

Significant government supports are available, but more will be needed to help businesses manage additional debt and resolve commercial rent disputes over liabilities accrued during lockdowns.

The outlook for the sector is mixed and adapting to a very different post-crisis retail environment will present major challenges for many businesses.

Yet, there is also some ground for optimism if we look further out into 2021.

Relative to other countries, the wider economy has performed well. 

This means the resources are there to support vulnerable business and jobs over the coming months. 

It also bodes well for a strong recovery when life returns to normal.

The easing of retail restrictions in the summer and through December saw a substantial jump in consumer confidence and spending. 

Pent-up demand meant many were eager to spend when they had the chance.

While the next few months will be very difficult, this is likely to be the case again when the economy fully open ups. 

In the first nine months of 2020 Irish households saved almost €11bn, €5bn more than the same period last year. 

Unlocking this spending power will be key to a strong economic rebound.

There are two other major factors that will shape the consumer and retail landscape over the coming months, Brexit and the accelerated growth of online retail.

Even with a deal, Brexit will result in additional costs to trading between Ireland and Britain.

The registry of Irish website domain names recorded a 26% increase in the number of new websites using an Irish domain address in the first half of the year

Notwithstanding intense competition, retail margins are tight, and some of these costs will inevitably get passed onto the consumer. 

It has already prompted retailers to review their product lines and supply chains, and how they organise their business.

Arnold Dillon, director of Retail Ireland.  

The rapid growth of online retail will affect the sector even more fundamentally than Brexit. 

Covid has meant that changes in consumer trends, expected to take place over five years, have occurred over the course of five months in some instances.

The crisis prompted many retailers to fast-track their digital plans. 

The registry of Irish website domain names recorded a 26% increase in the number of new websites using an Irish domain address in the first half of the year, while thousands of businesses have invested heavily in improving their online offering.

While online competition is a particularly acute challenge for many smaller retail businesses, there are also opportunities. 

Encouragingly, this year domestic businesses reclaimed some of the market share captured by overseas sellers over the years.

In 2019, according to payment transaction company Revolut, 67% of online spending by Irish customers was with overseas businesses, with just 33% domestic. 

This year, however, 43% of online shopping was with Irish businesses, while 57% went abroad – a significant shift.

Even with the growth of online sales, the high street and bricks and mortar retail will remain central to the sector’s success, and that of the wider economy.

Customers still expect - and value - the experience and customer service offered in-store. 

This will not change any time soon, even though Covid has strained this offering over recent months.

Once the vaccine is rolled out, the big challenge will be to revitalise and relaunch our towns and cities as post-crisis economic, social, and cultural hubs.

Getting the right mix of retail, hospitality, culture, and commerce back into our urban centres is key to the future, not only of a successful retail sector, but also our wider communities.

The past year has been one of immense challenges, but 2021 is an opportunity for a sustainable recovery and a relaunch.

• Arnold Dillon is director of Retail Ireland