Euro parity may be too little too late for freefalling retail sector

TESCO’S announcement that it was introducing euro-sterling price parity on clothing appears to be an innovative first step which many retailers here should have implemented months ago.

Certainly it would have enabled stores, particularly those in Dublin along with the border and midlands, to be more competitive during the lucrative Christmas season, thereby giving them a greater nest-egg to fight off the worst rigours of the recession.

Retail outlets across the country have been shutting down at a rate of knots over the past four months.

However, when one looks more closely at exactly who has been closing and the breadth of their demise, it becomes clear that the failure to implement the fair exchange for Irish customers has only been a sideshow in the general retail freefall.

The latest large chain to collapse here, Principles, is one of a number of British high-street chains that have been forced to close down across Britain and Ireland.

Its confirmation this week that more than 200 staff are to be let go follows similar announcements by the likes of Zavvi, Adams and Land of Leather. Irish fashion name Sasha has also suffered with multiple closures.

Even deeply established names such as Marks and Spencer have not been immune from the downturn, though it has confined its closures to Britain so far.

According to Bloxham analyst Alan McQuaid the rapid vacation of retail sites seen over the past few months is going to continue for some time to come.

“What we are going through at the moment is a crisis of monumental proportions that we have not seen before, certainly in decades.

“The bottom line is that when this is over — and it is going to have to end at some stage — the economic landscape will be completely different from what it was before, not only in terms of banks on the high street but also there will be a lot less of these big retail names that people will have come to know in recent years. You are going to see a lot of closures in that sector before this thing is over.”

For some time Mr McQuaid has been saying the Government should look at reversing the decision in the budget to increase VAT for a number of reasons, including the fact that lower VAT should in theory encourage shoppers to spend more in the Republic rather than heading North.

“What makes deflation such a dreaded condition is that, once it takes hold, it motivates consumers to hold back on spending and the expectation that they will be able to buy things at a cheaper price later,” he said. That causes a further drop in demand leading to more cutbacks in production and even slower economic activity, which could result in more job losses.

He said people are simply not going to splash out large sums of money on goods they might previously have bought on a whim.

“Clothing is an area where there will be difficulties as well as electrical goods. You have to look at discretionary spending. People need clothing, but are they going to be buying top of the range? Probably not. The lower range of stores such as Tesco or Penneys are going to suffer less than the higher end shops in that area. For example, Poundstores are doing really well and will do well.”

Grocery outlets are also facing changing trends in light of the recessionary times. The public is shopping around to ensure they get the best deals.

“Lidl and Aldi have done extremely well,” said Mr McQuaid. “When you come to the likes of Dunnes, they have been slow to respond to that. In hard times people are going to look to save as much money as possible and try to find the best value and the German stores are the ones doing that at the moment.”