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Retail sales increase, but continually falling prices a concern

Retailers in Ireland saw an upturn in performance in the first quarter of 2017, but other key industry metrics are a cause for concern, according to a new report from Retail Ireland, the Ibec group that represents the sector. In its latest Retail Monitor, published today, the group said that while retail sales values grew by 3.1% in the first quarter of the year compared to the same period in 2016, falling prices and weak consumer and retailer confidence remained a cause for concern.

Retail Ireland Director Thomas Burke stated: “Sales data for the first quarter appear broadly positive on the surface, however some of the other key sector metrics are a cause for concern. Consumer prices remain in free fall and profitability in the sector is now coming under real strain as Irish retailers cut prices in order to remain competitive, both with each other and with foreign based online retailers.”

Q1 of 2017 saw significant deflation and heavy discounting across most categories.  Of the 32 major retail categories tracked by the CSO, 25 saw price deflation in March when compared to the same month in 2016, with consumer prices now back to 2009 levels.

Mr Burke continued: “Irish consumers continue to be strongly motivated by price and value in 2017. This downward pressure on prices is particularly worrying given recent cost increases for retailers, in rents, rates and insurance. Such increases are likely to put further pressure on the wafer thin operating margins in the sector. With consumer confidence remaining shaky, retailers are bracing themselves for difficult trading conditions over the coming months.”

Key trends set out in the Retail Ireland Q1 2017 Monitor include:

Supermarkets and convenience stores: This category of retailing is experiencing a growing gap between its performance and growth in consumer expenditure,  in common with the wider retail sector. Convenience stores are better at mirroring the strong numbers delivered by the macro economy. Deflation remains a problem with the latest CPI figures showing food and non alcoholic beverage deflation running at 2.6% in March, while alcohol prices declined by 5.2%.

Department stores: Overall, a positive first quarter for department stores, with online being the main driver of growth in the first quarter of the year. The key categories driving growth are: electrical, furniture, homewares, women’s shoes and beauty. Department stores are already reporting a positive outlook for business in Q2.

Pharmacies: A late Easter and Mother’s Day, and the associated school holiday period, has meant that the start to 2017 has been slower than anticipated. Within the pharmacy category there is little evidence that the more positive consumer sentiment is impacting positively.

Furniture and homewares: Bedroom and dining furniture have seen good recovery in Q1. These two categories were probably the most affected during the economic downturn but current consumer confidence has seen demand for these products return. The fabric sofa category had the biggest single growth in the first three months of 2017.

Computer and electronics: Electrical and electronics stores have been experiencing strong demand for TVs, white goods, large kitchen appliances and wearables. Brands offering a health and fitness focus have also been in high demand throughout the first three months of 2017.

DIY and hardware: The recent settled weather has delivered an early start to the crucial gardening season and demand for less seasonally affected DIY categories remains encouraging.

Books, newspapers and stationery: It was a mixed performance in Q1 for the books, newspapers and stationery category. Core book volumes were up modestly, but newspapers and magazine’s volumes continued to decline. Stationery volumes remained static.

Service Stations: The average pump prices for unleaded petrol increased by 3% including VAT, and by 1% including VAT for diesel in the period from end December 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.

Fashion & Footwear: The late Easter this year also challenged the fashion, footwear and textiles category, as Easter is normally the trigger for spring-summer buying. The migration of fashion shoppers to foreign based online retail channels continues to negatively impact  this category more than others.