The economic and political upheaval in Ireland will likely spell a tough Christmas for retailers in the region.
As the International Monetary Fund and the European Union injects up to 90 billion euros, or $120.9 billion at current exchange rates, to rescue the country’s faltering economy, the U.K. is also in talks to offer Ireland a direct bilateral loan of several billion pounds. As a condition of the bailout, Ireland’s government will today give details of a four-year austerity plan, while the country’s 2011 budget will be delivered Dec. 7.
George Wallace, chief executive officer of U.K.-based retail analyst MHE Retail, said that in light of these measures, retail prospects for Ireland don’t look promising. “Normally, when you have a recession in the macro economy, people expect retail sales to fall, but they often work out better than people were expecting,” said Wallace. “But in the case of Ireland it’s had such a severe shock to the economy…so many people have lost their jobs or are worried about their jobs, they will be inclined to rein in their spending. The economy is in complete meltdown.”
Richard Perks, director of retail research at Mintel International in London, said he takes a “pretty bearish” view of retail in Ireland. Perks noted that, according to Ireland’s Central Statistic Office, Irish retail sales for 2009 were down 18 percent on the previous year, and that retail sales for the first three quarters of 2010 are down 2.3 percent compared with the same period in 2009. Perks said that what’s crucial for retailers is how well they prepared for a downturn, in terms of inventory. “I think retailers could see what was coming, it was quite clear,” said Perks, referring to the fact that Ireland first entered recession in 2008.
International retailers with a large presence in Ireland include Tesco and department store chain Debenhams, while Penneys, the value clothing retailer that trades as Primark in the U.K., was founded in Ireland and has 38 stores in the country. Associated British Foods, Primark’s parent company, said earlier this month that while its overall sales for Primark grew 18 percent in the year ending Sept. 18, trading in Ireland didn’t reflect this trend, as “the weak economy had an adverse impact on sales.”
David Fitzsimons, ceo of Retail Excellence Ireland, a not-for-profit industry body, admitted that consumer sentiment in Ireland “is at an all-time low,” he nevertheless welcomed the “clarity” that the IMF’s intervention and the December budget will bring. “On Dec. 8, the consumer will know how the budget is going to affect them and where the economy is going,” he said, adding that this could release some “pent-up demand” among consumers. Value retailers, such as Penneys and supermarkets Lidl and Aldi, will continue to weather the storm, Fitzsimons said, but he expects that midmarket retailers to be squeezed and that they will discount heavily in the pre-Christmas period. Fitzsimons pointed out that high-end retailers, such as department store Brown Thomas, are “a little more resilient.” “They’ve got a more loyal demographic that hasn’t borne as much pain [in the financial crisis],” said Fitzsimons. “What remains is a loyal and habitual shopper.”