While it was a difficult trading year, the fact that you have survived another difficult year in business, means you must be doing something right!
Dec 16 2011
As each year draws to a close, we tend to look back over what we have accomplished in the past 12 months. And so it’s that time of year again and many may feel like the past year consisted of working day and night to simply pay off bank loans and service the national debt. Unfortunately the economic fortunes of the country remain as bleak as they did this time last year and the recent budget hasn’t given anyone much cause for celebration.
The Budget was as expected – harsh but tactful. With the VAT rate rising to 23%, it will now stand 3% higher than the UK VAT rate which you would imagine would increase the onslaught of cross-border shopping again.
However petrol prices have also risen to such levels that the savings typically made on goods will be swallowed up by the price of the fuel, making it less attractive for southern shoppers to make the trek north.
The fact that it doesn’t make financial sense for people to cross the border to shop is, in essence good news for retailers but it leaves consumers with little option but to decrease spend and search further for value, driving even more shoppers into the warm embrace of the discounters.
The new VAT rate is bad news for retailers as most of you have already cut margins on groceries and fuel to miniscule levels in order to cope with competition and cutting margins further will mean earning little to no profit. The funny thing is that many retailers report that business is actually thriving, yet they are still struggling to make a profit because they are keeping margins tight to try to keep up with consumers’ increasing appetite for value. The fact that rents, rates and wages remain extraordinarily high, does not help the situation.
Spending is thought to be down by 40-50% compared with the boom times and people are less and less likely to dip into savings with the news that there are a number of even tougher budgets to come over the next few years. The rumours that the Irish government was secretly printing the punt, in anticipation of the collapse of the euro, have been firmly knocked on the head but the fact that these rumours are circulating shows just how fragile the Irish economic situation is at present.
Early reports for the Christmas season are that sales are up after a couple of bumper weekends but this may also be due to the fact that consumers are trying to buy higher price goods before the VAT increases kick in, in January. While this doesn’t concern grocery retailers too much, it gives an indication of the mindset of the Irish consumer. There is a lot of uncertainty and anxiety about the future of the economy. The realisation that Europe really does control our destiny is slowly sinking in and these austerity measures imposed by the government to satisfy the Troika bailout deal will be felt for a long time to come.
This Budget affected everyone, but the lower to middle income workers will really feel the pinch in the new year with increases in VAT and fuel, a decrease in children’s allowance and impending increases in public transport and private health care costs. With this in mind, shoppers are going to be watching every cent during their shopping trips, ensuring price remains the top priority going forward.
Special offers have been big news for a number of years now and the popularity of promotional products is only going to grow. While many used to sneer at the thought of using money-off coupons or vouchers, now it’s completely acceptable to hand in a coupon cut from a magazine for 30 cent off a product or a ‘buy one get one free’ offer. Adjusting to your customers’ mindset is crucial to staying in business in 2012.
The next couple of weeks will hopefully be extremely busy for retailers across the country but when all the Christmas madness is over and you look back on 2011, don’t forget to congratulate yourself for staying in business this year and thank your staff for their hard work because it does take serious graft and determination to have successfully navigated your business through the past year and that in itself is a huge achievement.
From all the team at ShelfLife, I would like to wish one and all a very happy Christmas and a peaceful and prosperous new year.