2011 will see more retail casualties
With incomes having been decimated by the December 2010 budget, 2011 will see many major Irish retailers bite the dust, writes Dan White
18 January 2011
The New Year had barely started when it was announced that Celtic Bookmakers, the firm founded by former Fine Gael minister Ivan Yates, had called in the receivers. Celtic, which had 64 betting shops at its peak, owed AIB €6m.
It wasn’t only Celtic that felt the cold economic winds during the first week of the New Year. Café Bar Deli, the budget restaurant chain founded by Jay Bourke, revealed that it was going to apply to the High Court for the appointment of an examiner, Toni & Guy announced that it was closing four of its 11 Irish hair salons while Superquinn closed its Naas outlet.
Across the water, books-to-CDs retailer HMV announced that it would close 60 stores in 2011, including 20 outlets of its Waterstone’s bookshop chain. With Waterstone’s having two Dublin outlets literally across the road from one another at the top of Dawson Street (Waterstone’s and Hodges Figgis) the announcement sent a shockwave down the spines of all Irish booklovers, including yours truly.
Bank crisis worsens
Meanwhile the Irish banking crisis continued to worsen. When the Minister for Finance used his draconian, critics might describe them as dictatorial, new powers to effectively nationalise AIB, the country’s biggest bank during the Celtic Tiger years, just two days before Christmas the press were excluded from the High Court hearing.
The excuse trotted out to justify the exclusion of the hacks was that “commercially sensitive” information was about to be revealed. Presumably while such information could be safely revealed to m’learned friends the hacks, and through them the Irish people, could not be safely trusted with such information.
What was it that the government and AIB didn’t want us to know? That the flight of deposits from AIB, which lost €13bn of deposits, a sixth of the total, in the five months to the end of November 2010 had accelerated? This would certainly tally with ECB figures showing that the amount which it had lent to the Irish-owned banks had risen to almost €100bn by the end of December 2010.
Or is it that AIB, which has already written off more than €9bn in loans losses, has discovered yet another black hole in its loan book? Despite the government’s best efforts to keep everything under wraps we will almost certainly find out what is really happening at AIB and the other Irish-owned banks within the next few months.
Retail sector will feel the effects
Whatever the truth of the matter, this combination of continuing uncertainty surrounding the Irish-owned banks and the swingeing budget tax increases, which will leave the average family approximately €3,000 per year worse off, is likely to have a devastating effect on the retailing sector.
Since peaking in late 2007, the value of Irish retail sales has fallen by almost a quarter. Even when car sales, by far the most volatile sales category, are excluded, the underlying fall in the value of sales has still been almost a fifth. While the December figures had yet to be published at the time of going to press, the likelihood is that a combination of the budget tax increases and the appalling weather conditions resulted in a very disappointing Christmas for Irish retailers.
Of course it could be argued that each of the retailers announcing bad news early in the New Year suffered from its own unique set of weakness and that it was these rather than the poor climate for retailers generally that largely contributed to their problems.
In the case of Yates’ Celtic Bookmakers, it is clear that the chain massively overpaid for acquisitions, paying a total of €6.5m for fellow-bookies Joe Molloy and UBET in 2007. It also completely missed out on the move to internet gambling. With Paddy Power, the largest Irish-owned bookie, now deriving two-thirds of its revenues and almost three-quarters of its profits from online gambling, it is clear that any bookmaker that lacks a significant online presence doesn’t have a future.
HMV has also been blindsided by the rise and rise of the internet. Who wants to buy CDs and DVDs when you can download whatever you want from the internet? Books are also under pressure with purchasers increasingly opting either to buy physical books online or else going the whole hog and downloading e-books instead.
Superquinn blamed the closure of its Naas store on its failure to negotiate a new lease with its landlord when the old one expired while could the Toni & Guy closures have had anything to do with cash-strapped customers being prepared to endure longer periods between their visits to the hairdresser?
A bloodbath for retailers
Whatever the reasons for each individual retailer’s problems it is difficult to resist the conclusion that they form part of a wider trend. With household disposable incomes having been slashed in the December 2010 budget and three more tough budgets to come, it’s a bloodbath out there for retailers.
The awful December weather, which saw retail sales fall by up to 10% in the week before Christmas compared to the same week in 2009, was only partially offset by the post-Christmas thaw and better-than-expected winter sales.
A recent survey by IBEC’s Retail Ireland offshoot found that sentiment among retailers was almost universally negative with over half of all retailers expecting their sales, profits and employee numbers to fall over the next three months. For a sector that has already shed at least 25,000 jobs, a tenth of the total, the outlook for retailers and their staff is bleak and getting bleaker.
While most retailers initially welcomed the December 2010 budget because it left VAT and excise duties untouched and thus did nothing to further encourage shoppers to head north, the realisation is now slowly sinking in that, by costing the average family up to e3,000 a year in increased income tax and the new universal social charge, the money which would have gone to Newry has gone to the exchequer instead.
This means that, even if the current incipient export-led recovery gathers pace, retailers will be among the last to benefit. Even if the banking system can be nursed back to solvency and Ireland can somehow avoid a sovereign debt default, two very big “ifs”, it will be at least 2012 before retailers will feel any benefit. For many hard-pressed Irish retailers that will be too late.
Celtic Bookmakers may have been the first high profile Irish retailer to go bust in 2011. It certainly won’t be the last.