Help struggling retailers and save jobs by buying Irish this Christmas
And as if greatly reduced consumer spending wasn’t enough for them to deal with, the migration of some shoppers to the internet, where they believe they can get cheaper prices, and often do, is making things even harder.
Add to that the combination of commercial rents that cannot be reduced as part of any move by retailers to compensate themselves by driving down their costs, high charges for services imposed by the state, such as rates, and banks that are less forgiving when it comes to the provision of necessary overdrafts that help smooth out cash flow issues. It is easy to understand why many smaller and medium-sized retailers have given up.
It is a really bad sign for the economy when businesses close in the final quarter of the calendar year. For many this should be their best and busiest time as people spend more money than they might at earlier times of the year. But if a business cannot make a profit now then what chance does it have when the New Year comes? Retail businesses are closing this quarter and, unfortunately, it is highly likely that the shutters will come down at many more premises during the early months of 2012 when, for many, retail trade withers and consumers seek to clear debts instead of buying more.
All of these closures provide for a rather depressing visage in many of our villages, towns and cities. Old buildings are failing into disrepair (made worse by the large commercial office blocks that are left empty). New buildings haven’t even been moved into, emphasising the waste that was involved in their construction and the unrealistic expectations that prompted their erection. Such vacancy has made much of Ireland look ugly.
The vibrancy of the Celtic Tiger era is gone too. Much of the shopping of the last decade may have been excessive, unnecessary and vulgar — did people really need much of the stuff they were buying, especially if they were using borrowed money to do so? — but at least there was a buzz in the streets and smiles on people’s faces as they went about their daily activities.
The forthcoming Value Added Tax increases to be imposed by the state will make things even worse. The Government hasn’t even waited for next week’s budget announcement to confirm that VAT on so-called luxury goods (the majority of things you buy, in other words) is increasing from 21% to 23% from the start of January. In fairness, its predecessor did commit to the VAT rise as part of its infamous four-year plan agreed with the IMF a year ago, but it did not suggest imposing the rise in just one go at the first opportunity.
The Government has opted for this as an alternative to increasing income tax rates but the merit of this approach is debatable. It believes it will raise an additional €670 million as a result of the VAT increase, but has conceded that this does not take into account the possible drop in sales that will result both from this VAT increase and the general economic malaise. The fear is that this VAT rise may be counterproductive.
Meanwhile, retail businesses are restricted in how they can reduce their costs. For many the rents they pay are unsustainable and contracts were signed with landlords on the basis of upward only rent reviews at regular intervals. Some have been fortunate to find understanding landlords who will consent to a reduction in rent appropriate to the distressed state in which the tenant finds itself. Others though have found that insurance company owners — who do not want to affect the nominal valuations on their property portfolios by admitting they can’t attract the old rents — and overborrowed owners — who need the cash to service their own debts — are unwilling to revise downwards. This has led to the strange irony of such owners putting their tenants out of business and of then renting the space at a far lower, and more affordable, rate to a replacement business, if they can find one to take the space.
The Government promised that new laws would be introduced by year end to deal with the anomaly of upward only rent reviews, but has not done so to date. The growing belief is that it won’t, and that it will cite constitutional problems over property rights as its excuse, as its predecessor did. The biggest pressure put on it not to make change is believed to have come from NAMA. The National Asset Management Agency owns the loans secured on many of these commercial properties and bought those loans at a price that assumed a certain value could be ascribed to the property that was offered as the asset to secure the loan. Reducing the rent on a property leads automatically to a reduction in the assumed value of the property and could create further embarrassing losses for NAMA, raising even more questions about the prices it paid for loans.
As if all of this was not bad enough, the internet now poses an even greater problem than heretofore for retailers. Many people believe they can find non-perishable goods, such as clothes, toys and electronic items in particular, at far cheaper prices on the net than in the shops in Ireland, even after the costs of delivery from overseas are taken into account. And it is hard to blame people with limited budgets looking for a bargain, especially if they see foreign shops in Ireland offering clothes at prices higher than those at which their internet-based sales unit are prepared to ship.
WE now have the phenomenon of people (mainly women) going into shops to look at and try on clothes that they replace on the rail before heading back to their computer screens. They order online then the clothes they have just worn if they are less expensive. Many online retailers are wising up and adjust the prices accordingly, but some people are still exploiting this gap. And the Irish-owned retailers are finding it very hard to compete.
Where will be then when bookshops and music stores close with regularity because people are buying online instead? When clothes shops become far less plentiful? When people buy their phones, mp3s, DVD players, etc., online because it is cheaper? Even bigger items such as televisions? My fear about increased use of the internet is threefold: how much VAT is going to be lost to the Irish state because of the purchase of goods from outside the EU?; how much trade is going to be lost in Irish shops, bringing about further job losses?; and what sort of community will we have if people buy all of their goods from home and have them delivered there, instead of engaging with shopkeepers in their stores?
Tomorrow the Small Firms Association is encouraging people to spend a larger proportion of what they spend on Irish-made goods, either in shops or online (though beware that websites that have the .ie label are actually Irish). I understand that many people may feel that they cannot afford to do so, but any effort may be worthwhile in the longer run.
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