christmas cheer for irish retail...christmas retail monitor 2018 thomas burke director...
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Christmas cheer for Irish retail
Christmas Retail Monitor 2018
December 2018
Christmas Retail Monitor 2018
Thomas [email protected] 605 1558
Festive cheer to make tills ring After what has been a tumultuous year of highs and lows for Irish retailers, we have now reached a crucial juncture in terms of determining the end of year position for the sector. With year to date sales growth of 2.8% and an array of positive macroeconomic indicators all pointing to growing consumer spending power, you would be forgiven for thinking that all was rosy in the garden for the sector. Unfortunately, however, challenges remain. This year we have seen storms and heatwaves derail sales for extended periods in certain categories and sales performance more generally has been patchy during 2018. Overall, erratic data has made it challenging for retailers and analysts alike to draw any determined trend from the monthly sales numbers.
However, strong footfall numbers from Black Friday weekend suggest that the consumer is ready to celebrate the festive season and with this now key promotional event out of the way, retailers are getting down to the serious business of driving towards end of year targets. A minor dip in sales in October on the previous month, while concerning, should not derail this optimism. Despite the choppy nature of sales in the year to date, the overall trend remains positive with the sector likely to build on the consistent sales growth of the last four years. The persistent gap between sales values and volumes during that four-year period has continued to close to a point where there is now almost like for like growth in both sales’ quantities and values. This suggests a return to more normal margins in the sector and a move away from the heavy discounting of previous Christmas seasons.
While concerns around the migration to digital platforms and the impact of Brexit on consumer sentiment remain in the background, retailers are hoping that for the next four weeks at least these challenges can be set aside, and consumers will embrace the festival of shopping that the Christmas season brings. There is no doubt the spending power is there, the challenge now for retailers is to best position themselves over this key trading period to convince consumers to part with that hard-earned cash in their stores and through their various other sales channels.
Season’s greetings from Retail Ireland.
Christmas Retail Monitor 2018
On a year-to-date basis, the combined value of Irish retail sales is up 2.8% versus 2017, with volume up by 4.3% over the same period.
Comparing sales during October to those a month earlier in September, total sales values fell by 0.5%, with volumes posting a 0.9% drop.
On an annualised basis, the total value of Irish retail sales (excluding sales of cars and sales in bars) was up 3.9% compared with October 2017, with a 4.8% increase in volume over the same period.
2.8% -0.5% 3.9%
Retailers look to sustain steady growth during Christmas period As we enter the most important trading period of the year, Irish retailers remain confident that the steady growth in retail sales throughout 2018 can be sustained into the Christmas trading cycle. With growing disposable income, rising wage levels and continually falling prices, the spending power of Irish consumers is greater now than at any stage in the last decade. For this reason, retailers have good cause for such optimism, but they remain acutely aware of the delicate nature of Irish consumer confidence which has experienced peaks and troughs during the last year. A slight dip in sales in October should not give raise to unnecessary concern for traders, but it does act as a timely reminder of the continuing fragility of the sector.
All retail sales – as at October 2018
Core retail sales (ex Cars & Bars) (y-on-y, % ch)
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Christmas Retail Monitor 2018
Macro trends
Labour market hits record high There was an annual increase in employment of 3.0% or 66,700 in the year to the third quarter of 2018, bringing total employment to 2,273,200. This compares with an annual increase of 3.4% or 74,100 in employment in the previous quarter and an increase of 2.2% or 48,500 in the year to Q3 2017. Unemployment decreased by 19,700 (-12.1%) in the year to Q3 2018 bringing the total number of persons unemployed to 143,800. This is the twenty fifth quarter in succession where unemployment has declined on an annual basis. While the tightening labour market is presenting retailers with a challenge in terms of staff recruitment and retention, it is certainly positive news from a trading perspective as more people working results in greater consumer spending power.
Retailers battle for share of growing disposable incomes The total value of consumer spending in the economy is on course to grow by 5% in 2018, with volumes likely to grow by 3.8%. Unlike the previous peak in consumer spending between 2005 and 2008, this growth is not credit driven. During that period Irish households were borrowing about €2 billion per month to fund spending. The challenge for Irish retailers at present is to capture a larger portion of that growing disposable income, which is currently going to service housing costs and to the entertainment sectors.
Record breaking Christmas in store Current indicators show that total consumer spending in December will be 3% higher when compared to December 2017. On average Irish households will spend €2,690 this Christmas. This is €866 more than any other month of the year and is up from €2,654 in 2017 and €2,587 in 2016. While there has undoubtedly been some Brexit related consumer nervousness in recent weeks, this is unlikely to disrupt consumers spending to any great extent during the festive period. This will, however, be monitored closely by retailers in Q1 of 2019 as we inch closer to exit day for the UK.
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Employment Growth
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8%
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Real Disposable Income
Christmas Retail Monitor 2018
Macro trends
Cost of living falls back to 2008 levels
Inflation levels remain very low in Ireland with the overall cost of living now on par with 2008. Further depreciation in sterling which reduced import prices, falling oil prices and intense competition in the retail sector has kept inflation levels in check during 2018. Irish consumer goods prices grew by just 0.2% in the year to the end of October 2018, while Ibec predicts full year inflation of just 0.6%. This is significantly below the year to date EU average of 2.2%. Key drivers of falling retail prices include electrical products, footwear and food. While the relative levels of discounting have eased in recent months, retailers remain sensitive to consumer demand for low prices.
Consumer sentiment remains unpredictable
Consumer sentiment has been inconsistent throughout 2018, largely due to continued uncertainty around Brexit and the general geopolitical and economic uncertainty that have arisen. While a further drop in sentiment in October saw the index dip to a 46-month low, retailers remain positive and this is reflected in Q3 sales numbers where value growth increased by 3.9% compared to the same quarter in 2017. Retailers will hope that this emerging positivity will be carried into Christmas 2018 and the downward trajectory of the consumer sentiment index can be reversed.
Online remains the fastest growing channel
With sterling remaining weak, we have continued to see high levels of online transactions with websites outside the State throughout 2018. According to the Central Bank of Ireland, on an annual basis, total e-commerce expenditure continued to grow at a robust pace in Q3 2018, rising by 16% to just over €4.6 billion. Of this, €3.3 billion and €1.3 billion is attributable to debit cards and credit cards respectively. In September, total e-commerce expenditure rose by 11% year-on-year to €1.5 billion. Total e-commerce spend is now likely to exceed €16 billion in the full year of 2018.
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EU
Inflation Oct YTD
Ibec Head Office
84/86 Lower Baggot Street
Dublin 2
T: + 353 1 605 1500
W: www.ibec.ie/membership
Limerick
Gardner House Bank
Place Charlotte Quay Limerick
T: + 353 61 410411
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Ross House
Victoria Place
Galway
T: + 353 91 561109
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Donegal
3rd Floor, Pier One Quay Street
Donegal Town Donegal
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W: www.ibec.ie/northwest
Cork
Knockrea House
Douglas Road
Cork
T: + 353 21 4295511
W: www.ibec.ie/cork
Waterford
Waterford Business Park
Cork Road Waterford
T: + 353 51 331260
W: www.ibec.ie/southeast
Brussels
Avenue de Cortenbergh
89, Box 2
B-1000 Brussels
BELGIUM
T: + 32 (0)2 512.33.33
F: + 32 (0)2 512.13.53
W: www.ibec.ie/europe
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Retail Ireland
84/86 Lower Baggot Street
Dublin 2
T: + 353 1 605 1500
W: www.retailireland.ie