Retail Ireland Monitor. February in review: charting retail s recovery

Transcription

1 Retail Ireland Monitor February in review: charting retail s recovery

2 As conditions improve and momentum strengthens, thoughts move from consolidation to growth We can now definitively say that 2015 was the year in which the Irish retail industry returned to growth. While other economic sectors enjoyed green shoots and began to post strong growth over the past couple of years, retailers saw their performance remain largely stagnant, stubbornly showing little, if any, signs of a rebound as Irish consumers remained frustratingly reluctant to accept the narrative of economic resurgence. Several years of contraction had combined to leave an undeniable scar on the consumer psyche and this fear or refusal to spend continued to impact heavily on domestic demand. The situation has, however, turned around in the last 12 months with all 11 major retail categories posting volume growth in the full year, and 9 of the 11 returning value growth over the period. Those categories recording a decline included a very marginal drop for specialised food and drinks and service station operators, which continue to be sharply impacted by tumbling oil prices. All in all, a positive performance by Irish retail during The increasingly positive sentiment throughout 2015 culminated in a solid performance over the final quarter and the crucial festive trading period. Christmas 2015 has been roundly acknowledged within the industry to have been a success and the best since Most traders reported strong in-store footfall over the period and a number also recorded strong traffic to their increasingly important online sales platforms. What was particularly noticeable, however, was the manner in which the Christmas shopping period was perhaps longer than ever before. Retail sales peaked strongly in November and while a slight month-on-month dip was recorded in December, sales values still ran close to 3% ahead of levels in the same period in Last October, Retail Ireland cited research which indicated that almost 50% of Irish consumers surveyed planned to complete their Christmas shopping during November, and the statistics reveal that these intentions were certainly realised. Although their long term value to the sector continues to be hotly debated, the emergence of the Black Friday and Cyber Monday shopping phenomena have only served to further extend the Christmas trading period far beyond the traditional peak of December.

3 So what are the hopes for 2016? Sustained growth is top of the wish list for most Irish retailers along with a return to more normal operating margins. The intense competition for customers and footfall has eroded margin across many sectors and it is hoped that the re-emergence of a less price sensitive consumer may afford a return to more normal margin levels. This is important for the sustainability and viability of the industry in the long term, as retailers will require resources in order to invest in their capital infrastructure and their people. Some retail businesses have not had the capacity to invest in any meaningful way for at least five years or more. Retail businesses, much like Ireland Inc., were forced to strip back their capital investment activity in order to preserve jobs and keep the doors open. Now those same operators must show ambition and invest in the future of their businesses in order to be well positioned to capitalise on emerging growth in the sector and across the wider domestic economy. Of course, the real threat for Irish retail is the ever spiralling costs of input. Already there are anecdotal reports of rent increases, insurance premium hikes and growing demands for wage increases. This will all have to be closely managed if we are to ensure that 2015 s new found growth is not eroded. There is a real danger that if input costs cannot be controlled, we will once again return to contraction. For traders finally emerging from seven long years of decline, this is a nightmare scenario and one which the new Government and other decision makers must be cognisant of during the months ahead. Thomas Burke Director thomas.burke@ibec.ie

4 Value of Irish retail sales as at December 2015 Value Q Q Nov 2015 Dec 2014 Supermarkets and convenience Department Specialised food and drinks (grocers, butchers, fish mongers, off-licences, bakeries, etc.) Fuel (including petrol and diesel) Pharmacies (including medicines, beauty and cosmetics) Fashion, footwear and textiles

5 Q Q Nov 2015 Dec 2014 Furniture, lighting and homewares DIY and hardware Computers, electrical and electronics Books, newspapers and stationery Other non-food specialised (music, toys, garden centres, sports, jewellers, etc.) All retail sales (excluding motor sales and bars)

6 Volume of Irish retail sales as at December 2015 Volume Q Q Nov 2015 Dec 2014 Supermarkets and convenience Department Specialised food and drinks (grocers, butchers, fish mongers, off-licences, bakeries, etc.) Fuel (including petrol and diesel) Pharmacies (including medicines, beauty and cosmetics) Fashion, footwear and textiles

7 Q Q Nov 2015 Dec 2014 Furniture, lighting and homewares DIY and hardware Computers, electrical and electronics Books, newspapers and stationery Other non-food specialised (music, toys, garden centres, sports, jewellers, etc.) All retail sales (excluding motor sales and bars)

8 Category analysis Solid recovery in the aisles despite relentless quest for value Despite the fiercely competitive operating environment and the impact of continued deflation across most product lines, the combined supermarket and convenience market saw a strong uplift during Q4, with a year-on-year value increase of 3.5%. This, the best performing period since early 2009, was driven principally by additional shopping trips across a larger customer base, particularly over the busy Christmas period, which saw the full year ending 3.0% up in value terms with volumes 4.6% higher than Despite the overall economic improvements, the recession era s transformative impact on consumer habits and shopping patterns is not expected to reverse in the near term as the migration to discount formats continues with customers still strongly motivated by price and value. Early start to the festive rush boosts Department Stores fortunes during Q4 Department Stores saw their Q4 combined sales values rise by a solid 5.9% with volumes up 9.0% over 2014, buoyed by an unexpectedly early start to Christmas shopping during a particularly impressive November which itself saw values soar 11.2% year-on-year, whilst December, traditionally considered the peak shopping month, returned a much more modest value growth of 3.0% over Taking the year in its entirety, value grew 3.8% over the previous 12 months, with volume growth almost twice that at 7.1%. Most in-store categories saw positive growth, with beauty, homewares, luxury fashion accessories and men s formalwear remaining key drivers throughout the year. Enhanced tourist spend also helped boost performance, particularly in the higher profile Dublin city. Falling price of fuel continues to challenge service stations, despite growth in diesel sales The country s service station operators saw the overall value of sales in the combined fuels market fall by -11.0% in Q4 and -8.1% over the entire year. The drop in the market for unleaded petrol continued throughout Q4, but at a slightly slower pace than in the first half of Meanwhile, diesel sales continued to gain momentum, mirroring previous trends. The final quarter saw the average pump price of both unleaded and diesel fall by a further 0.04 per litre. Taking the year as a whole, average pump prices were down by 0.10 for a litre of unleaded and 0.08 for diesel compared to These rapid drops have resulted in significant cost savings for motorists which has certainly contributed to the general uplift in Irish consumer confidence, despite the uncertain longer term impact on the global economy.

9 Category analysis Pharmacies welcome improved trading conditions, driven by beauty and fragrance Irish pharmacy operators saw their combined sales value grow by 3.8% over Q4 with a 7.5% surge in volume reflecting the price competitiveness of the sector and the ongoing impact of reductions in drug reimbursement costs. The final quarter across health, beauty and fragrance lines was defined by three peaks Black Friday weekend, the days immediately before Christmas and the start of the sales. In-store, and more significantly online growth, pushed November s values up 5.7% year-on-year, compared to December s more modest performance of 2.6%. Overall, marginal growth in prescription volumes, with stronger over-the-counter healthcare sales and a solid performance across beauty and gifting categories helped the combined pharmacies market end % up in value terms and 4.6% up in volume terms over Fashion and footwear s festive slowdown is not enough to damage full year growth On the back of a solid performance throughout the first three quarters, fashion and footwear traders ended the year with values up 5.7% and volumes climbing 9.2% over That said, Q4 value growth was perhaps slower than expected at 4.3% with December s values alone up a more modest 2.1% over Christmas The unseasonably mild temperatures appear to have impacted sales of higher margin winter clothing and accessories, this despite an earlier start to the traditional sales periods in some high profile and a much greater presence of low season tourists, particularly in Dublin city centre. Soaring sales of furniture and home accessories are once again leading retail s recovery After a number of successive quarters of solid growth, the combined furniture, lighting and homewares market saw no signs of slowing down during Q4, returning year-on-year value growth of 13.2%, and overall 2015 value growth of 11.1%. December s sales values alone grew 13.3%, with volumes soaring 18.9% over Christmas 2014, driven by a strong performance in furnishings both before and during the seasonal sales as property owners continue to invest accrued savings in home renovation projects and big ticket purchases.

10 Category analysis Growing demand ensures a solid end to a positive 2015 across DIY and hardware Solid demand in the core DIY categories throughout the year enjoyed a further boost during Q4. December sales values grew by 2.2% over 2014, with the full year ending 3.7% up on previous as construction projects and home renovations rebound strongly. Christmas trade, always important for home & garden operators in decorations, seasonal lines and houseplant sales in particular, grew well. A counter to the generally positive trends was the performance of the fuel sector, with a much milder winter reducing demand. Popularity of devices and gadgets drives strong sales in electronics Computers and electronics operators toasted the end of 2015 on an impressive high. Combined sales values over the entire year were 6.5% up on 2014, with volumes soaring 11.3%. Always a popular Christmas gift, sales during Q4 proved particularly robust, with values up 7.3% year-on-year. November s performance was particularly remarkable (values up a staggering 18.0% over November 2014), evidence of the growing significance of the Black Friday phenomenon in this category as bargain hunters hit the streets to satisfy their insatiable appetite for the latest and greatest gadgets. Books, news and stationery finally return to growth despite continued challenges A strong Q4 saw the overall market in books, news and stationery return to growth for the first time in many years with combined sales values in 2015 up 2% over the previous year. Dublin city and suburban are outperforming regional outlets, whilst consumers preference for digital formats continues to significantly impact news and magazines in particular, exasperated by cover price increases from UK publishers and the cumulative impact of Euro-Sterling exchange weakness. That said, online sales of physical books performed strongly around Black Friday, with spending even more concentrated during December (combined values up 3.7% on 2014) impacting store-based revenues whilst boosting overall performance.

11 Macro trends 2015 sees modest, yet symbolic, recovery Following a sustained period of decline, 2015 saw Irish retail sales post back-to-back annual growth for the first time since This growth, while modest considering the losses incurred over the previous seven years, is symbolic as an important step in the sector s recovery. In the full year to the end of 2015, total sales values grew by 2.5% compared to 2014 s growth of 1.5%. An analysis of trading performance over the crucial Christmas period indicates that growth almost doubled to 2.9% over Christmas In addition, analysts will be encouraged by the broad based growth with 9 of the 11 major retail categories posting value growth over the last 12 months. UK retail market continues to outperform Irish sales Despite a slight dip in British retail sales during Q4, the divergence in the post-recession performance of sales values between the UK and Ireland continues. Throughout the early and mid-2000s, retail sales in the UK and Ireland followed a similar trajectory. The crash of 2007 created a dramatic shift which has seen a gap of more than 40 index points grow between the two markets. Christmas 2015 sales in the UK disappointed against earlier expectations, while as predicted, Irish sales values returned modest growth. That said, early indications from the UK suggest that most of this lost ground was made up in January with sales hitting a four year high. The contrasting picture in both countries puts into context the scale of the Irish recovery to date. Exchange rate volatility poses continued challenge to some categories Recent months have seen continued volatility in exchange rates as the impact of international market shocks and plunging oil prices continues to bite. Growing weaknesses in the Chinese economy are also playing a part in global unease. While there has been somewhat of a recovery in the value of the Euro against Sterling from a low of just above GBP 0.70 to a more respectable GBP 0.77 in recent weeks, there remains a heightened sense of fragility which could result in further dramatic shifts, made worse by the prospect of Brexit. Those retailers sourcing products from the UK are hoping for some stability in Euro-Sterling values in order to recover margin, while those with a tourist element to their operation see the continued strength of the pound and dollar as crucial to maintaining Ireland s attractiveness to foreign visitors.

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