Q1
May
2017
Retail
Ireland
Monitor
Growing
sales mask
brittle
confidence
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Retail Ireland Monitor - May 2017
Retail property demand growing strongly
The performance of the retail sector in recent months has been curious and not fully explained
by recent headline sales numbers. Sales values increased by 3.1% in quarter one of 2017 when
compared to the same quarter last year, and sales volumes were 6.0% higher than quarter one
2016. On the face of it these numbers should be a cause for real optimism and hope for continued
future growth. Given that these strong numbers were posted despite persisting international
economic and political uncertainty, retailers should be bullish about future prospects, but
sentiment remains fragile.
At a macro level the picture is a relatively positive one. Recovery in the Irish economy continues
apace, with unemployment falling to 6.4% and tax receipts in the first quarter of the year rising. In
addition consumer confidence rose steadily in the first three months of the year. However, when
you scratch below the surface of the headline data, a different picture begins to emerge, one of
falling prices, shaky retailer confidence and anecdotal evidence of more difficult trading conditions
in recent weeks.
The first quarter of 2017 saw significant deflationary pressures emerge and heavy discounting was
reported in most categories. It is clear that Irish consumers’ continue to be strongly motivated
by price and value in 2017. Of the 32 major retail categories tracked by the CSO, 25 saw price
deflation in March when compared to the same month in 2016. Tobacco and fuel categories did
record price increases, but these were on the back of excise increases, currency fluctuations and
the curbing of oil supply by OPEC. This data suggests that deep discounting remains the order of
the day and that retailers remain reluctant to increase prices for fear of consumer backlash. This
trend, first established during the recession, is likely to continue for the foreseeable future and
despite recent improvements in consumer confidence indicators, retailers remain nervous.
Such concerns, however, are not evident in the retail property market which has seen a noticeable
upturn in transactions in recent months. 2016 saw substantial changes in the ownership of
major Irish retail centres throughout the country. This investment in retail property has continued
into 2017 with the development of new retail schemes along with planned refurbishment and
extensions to many existing retail centres.
Two sales in particular marked 2016 as an extraordinary year for Irish retail property.
Blanchardstown Town Centre sold for a reported €950m, making it the largest single asset sale in
the history of the State. Nama were paid a reported €1.85 billion for Project Jewel which included
a city centre site on O’Connell Street and Moore Street, 50% stakes in both the Ilac Shopping
Centre and the Pavilions in Swords, and ownership of Dundrum Town Centre, one of the country’s
most popular shopping destinations.
The opening of the Luas Cross City, in December, will bring increased footfall to a number of
Dublin city centre locations, and development is already underway on sites on Dawson Street and
Nassau Street which will benefit from the increased accessibility that Luas will bring.
Retail Ireland Monitor - May 2017
It is hoped that international brands will be attracted to these new larger units close to Grafton
Street. Furthermore, there is a notable increase in planning activity in the sector with development
expected to commence shortly on the former Clery’s department store and in a number of regional
retail locations including Waterford.
New owners, refurbishment to existing properties and expansion plans usually result in rent
reviews and these are now underway in a number of retail schemes around the country. Demand
from international brands and a shortage of supply continue to place upward pressure on prime
rents, and according to property experts, steady rent increases are expected across the country
over the next five years.
Therein lays the concern for many retailers at present. As the recovery in the sector remains fragile,
there is real fear amongst retailers that rising input costs will undermine the sustainability of that
recovery into the future. The importance of maintaining that competitive position is called out in
our recently launched strategy document, ‘Shaping the future of Irish retail 2020’. Only by retaining
that hard won competitiveness will the sector be in a position to grow, sustain jobs and continue
to deliver great value and a wide range of choice to Irish consumers. With retail rents currently
increasing by over 13% in prime shopping locations in Dublin and by 4-5% in other regional cities
such as Cork, Galway and Limerick, retailers fear that the benefit of the incremental growth in retail
sales values over recent months will be lost under a rapidly increasing cost base.
All businesses, including retailers, are operating in increasingly uncertain times. Nevertheless
the underlying figures for the sector and economy are positive. New entrants to the market, the
establishment of new retail destinations and refurbished and extended shopping centres will draw
new customers and promote consumer spending. In addition, the investment in retail property
over the past 12 months reinforces retail’s significant role within the domestic economy through
stimulating enterprise, increasing local purchasing power, and generating regional and local
employment. For these reasons we should be positive about the prospects for the remainder of
2017 and beyond.
Thomas Burke
Director
[email protected]
01 605 1558
Retail Ireland Monitor - May 2017
Value of Irish retail sales – as at March 2017
2017
vs
2016
March 2017
vs February
2017
March 2017
vs March
2016
Supermarkets and
convenience stores
1.7
-0.6
2.8
Department stores
-0.4
-4.0
-3.4
0.3
1.9
0.9
12.7
0.3
13.3
1.6
0.4
-0.5
2.2
-1.1
2.1
Value
Specialised food
and drinks stores
(grocers, butchers, fish
mongers, off-licences,
bakeries, etc.)
Fuel
(including petrol and diesel)
Pharmacies
(including medicines, beauty
and cosmetics)
Fashion, footwear
and textiles stores
Retail Ireland Monitor - May 2017
2017
vs
2016
March 2017
vs February
2017
March 2017
vs March
2016
Furniture, lighting and
homewares stores
8.8
-4.3
5.4
DIY and hardware
stores
4.6
-1.3
4.3
Computers, electrical
and electronics stores
5.0
-0.2
8.3
Books, newspapers
and stationery stores
-0.3
0.4
-1.8
2.7
9.6
2.4
3.1
0.2
3.2
Other non-food
specialised stores
(music, toys, garden centres,
sports, jewellers, etc.)
All retail sales
(excluding motor sales
and bars)
Retail Ireland Monitor - May 2017
Volume of Irish retail sales – as at March 2017
Volume
Supermarkets and
convenience stores
Department stores
Specialised food
and drinks stores
2017
vs
2016
March 2017
vs February
2017
March 2017
vs March
2016
3.3
-0.3
4.3
2.9
-3.3
0.2
3.0
1.9
3.4
1.9
0.8
1.2
3.3
0.7
0.3
5.2
-0.5
5.9
(grocers, butchers, fish
mongers, off-licences,
bakeries, etc.)
Fuel
(including petrol and diesel)
Pharmacies
(including medicines, beauty
and cosmetics)
Fashion, footwear
and textiles stores
Retail Ireland Monitor - May 2017
2017
vs
2016
March 2017
vs February
2017
March 2017
vs March
2016
15.2
-3.8
11.8
8.0
-1.2
7.7
Computers, electrical
and electronics stores
12.3
0.5
15.5
Books, newspapers
and stationery stores
-0.4
1.0
-1.8
12.5
11.6
13.0
6.0
0.5
6.0
Furniture, lighting and
homewares stores
DIY and hardware
stores
Other non-food
specialised stores
(music, toys, garden centres,
sports, jewellers, etc.)
All retail sales
(excluding motor sales
and bars)
Retail Ireland Monitor - May 2017
Category analysis
Deflation dampening supermarkets and
convenience stores recovery
Supermarkets and convenience stores are showing a 2.8%
growth in total sales values in March 2017 compared to March
2016. This compares with total sales volume growth of 4.3%
against the same month in 2016. It is a bellwether for deflation and
discounting both of which are present in the grocery trade. Latest
CPI figures showed food and non alcoholic drink deflation running
at 2.6% in March with alcohol prices declining by 5.2%. The only
significant category exhibiting inflation is the tobacco category
at 7.1%, mainly driven by excise increases. Supermarkets and
convenience retailing is experiencing, in common with the wider
retail sector, a growing gap between its performance and growth
in consumer expenditure. Convenience stores are better mirroring
the strong numbers delivered by the macro economy.
Online sales driving department store growth
Overall, a positive Q1 for department stores, with online sales
being the main driver of growth in the first quarter of the year. While
total sales value growth declined by 0.4% compared to the same
quarter last year, total sales volumes grew by 2.9% compared
quarter one 2016. City centre footfall remains challenged in the
first three months of the year due to ongoing Luas works. The key
areas driving quarter one growth for department stores have been
the electrical, furniture, homewares, women’s shoes and beauty
categories. Department stores are reporting a positive outlook for
business in quarter two.
OPEC agreement fuelling price rises
Average prices at pump increased by 3% including VAT for
unleaded and by 1% including VAT for diesel in the period from end
December 2016 to end March 2017. In a year on year comparison,
average price at the pump increased by 12% including VAT for
unleaded and by 15% including VAT for diesel in the period from
end March 2016 to end March 2017. The increase in pump
prices in Q1 2017 versus Q1 2016 is partly the result of the OPEC
agreement to curb supply.
Retail Ireland Monitor - May 2017
Category analysis
Late Easter and Mother’s Day contribute to
slow start to 2017 for pharmacies
The first quarter of 2017 has been a challenging environment
for the pharmacy sector, with little evidence that more positive
consumer sentiment is impacting positively. Total sales values
increased by 1.6% versus quarter one 2016 and total sales
volumes grew by 3.3% compared to the same quarter last year.
The continuing uncertain economic outlook means consumers’
remain relatively cautious and value orientated. On top of this
uncertain economic outlook, the cough and cold season was
notably earlier this winter, while the later Easter, Mother’s Day
and associated school holiday period, has meant that the start to
2017 has been slower than anticipated.
Growth in fashion continues despite delay in
spring-summer buying
The later Easter, this year, has made for a slight challenge for the
fashion, footwear and textiles category, as this is normally the
trigger for spring-summer buying. While total sales values grew by
2.2% and total sales volumes increased by 5.2% compared to the
same quarter last year, migration of fashion shoppers to foreignbased online retail channels continues to challenge this category
more than others. This challenge is unlikely to dissipate over the
coming months as fluctuations in sterling continue on the back
of the upcoming UK General Election and the beginning of Brexit
negotiations.
Growth in furniture and home accessories not
sitting down in Q1
The fabric sofa category had the biggest growth in this category
in the first three months of 2017, as the fashion for leather sofas
is replaced with an appeal to bring more softness into the home
with fabrics. This has even led traditional leather brands to replace
some of their leather sofas with fabric options. Bedroom and dining
furniture have also seen good recovery in quarter one. These two
categories were probably the most affected during the economic
downturn but with a bit more confidence around, growth has
returned to these categories as customers had put off purchasing
non-essential items up to now.
Retail Ireland Monitor - May 2017
Category analysis
Early start to the gardening season benefits
DIY and hardware stores
With Easter falling during March in 2016 and April in 2017,
the maintenance or growth in sales volumes and values in
quarter one for DIY and hardware stores was always going
to be a challenge. However, the end result was encouraging
with benign conditions delivering an early start to the crucial
gardening season. CSO data reported that total sales values in
quarter one increased by 4.3% compared to the same period
last year and total sales volumes increased by 8.0% over
2016’s first quarter. Pickup in the less seasonally affected DIY
categories remains encouraging.
Mid to high-end brands driving growth for
electrical and electronic stores
Electrical and electronics stores have been experiencing strong
demand for TVs, white goods, large kitchen appliances and
wearables in quarter one 2017. Brands offering a health and
fitness focus have been in high demand throughout the first three
months of the year. Growth in white goods has been driven by
mid to high-end brands as the replacement and refurbishment
market continues to recover. Growth in the TV category has
also been driven by mid to high-end brands and demand for
innovative beauty electronics has also been strong over the
quarter.
Sterling’s movements continue to stifle books,
newspapers and stationery sales
Books, newspapers and stationery market had a mixed
performance in the first quarter. Core book volumes were up
modestly in the quarter, building on a strong market performance
in the same quarter last year. This volume increase did not flow
through to book revenues with values impacted by significant
price deflation of up to 10% due to movements in sterling relative
to the same period in 2016. Newspapers volumes continue
to decline circa 5% in line with previous trends. Magazine
volumes also continue to decline with revenues further impacted
by sterling based price deflation on UK originated products.
Stationery volumes remain static with the market suffering some
value deflation due to movements in sterling.
Retail Ireland Monitor - May 2017
Macro trends
Rising inflation squeezes British living
standards
Consumer prices in the UK rose by 2.3% in the year to
March 2017. The UK inflation rate is now at its highest
level since September 2013, driven by rising prices of food
and alcohol, clothing, footwear and tobacco products.
Stronger inflation rates come on the back of sterling’s
17% drop since the Brexit referendum result, as well as an
increase in oil prices. Rising domestic prices are increasing
living costs and creating uncertainty amongst UK
householders who enjoyed near-zero inflation throughout
2015 and the first half of 2016.
Rents rising in key city centre locations
€3,000
€2,750
€2,700
€2,500
€2,250
€2,200
€2,000
€ per Sq M
Investment in Irish retail property was particularly strong in
2016 driven by the sale of prime shopping centres such as
Blanchardstown, Liffey Valley and Dundrum Town Centre.
Demand from international brands and a supply shortage
continues to place upward pressure on prime rents. At the
end of 2016, Zone A rents on Dublin’s Grafton Street were
at €6,500 sq m per annum and Henry Street at €4,683 per
sq m, with an average annual growth of 4% forecast for
2017-2021. As the graph shows, rents in other Irish cities
look set to continue to increase over the coming years.
Regional Retail Rents
€1,500
€1,200
€950
€1,000
€500
€0
2011
2012
2013
Shop Street Prime Rent
2014
Research by Cushman and Wakefield
Retailers remain reluctant to increase prices
It is clear that Irish consumers’ continue to be strongly
motivated by price and value in the first quarter of 2017.
Of the 32 major retail categories tracked by the CSO,
25 saw price deflation in March when compared to the
same month in 2016. Tobacco and fuel categories did
record price increases, but these were on the back of
excise increases, currency fluctuations and the curbing of
oil supply by OPEC. This data suggests that retailers are
continuing to rely on deep discounting and promotional
activity and are reluctant to increase prices for fear of
consumers voting with their feet and going elsewhere.
2015
2016
2017f
Cruises Street Prime Rent
2018f
2019f
2020f
2021f
St. Patrick's Street Prime Rent