Belfast Telegraph

Monday 1 September 2014

Survival of the fittest... or should that be biggest?

The retail sector has always proved a good bellwether of the local economy. Jenny Burnside finds out how is is performing in these tough times

As with the construction industry, retailers in Northern Ireland have taken a knock over the past two years.

For a sector which accounts for nearly 13% of gross value added (the new measurement to replace GDP) in Northern Ireland, that means a big blow to the local economy.

Oxford Economics estimates retailing employment accounted for 16.7% of total employment in 2010, down 6.1% (9,100 jobs) from its 2008 peak. Job losses, suffered as a result of the recession, are not expected to recover until 2017. So what is the outlook for Northern Ireland’s biggest sector?

Glyn Roberts, chief executive of the Northern Ireland Independent Retailers Trade Association says the VAT increase is the “wrong tax at the wrong time”, hindering consumer confidence in an already tough trading environment.

“The first quarter of 2011 will be a challenging time and we need greater focus from the Northern Ireland Executive to get a programme of growth and get the economy moving forward,” he maintains.

In Londonderry, traders have suffered from the cold weather and a fall in cross-border shoppers, while the VAT increase is expected to place added pressure on already low margins. Chair of Derry City Centre Traders Martin McCross said the main challenge for 2011 would be “survival”.

Many district councils throughout Northern Ireland have built up local commercial areas based on retail strategy and thus continued economic difficulties could have severe results for town centres.

Industry analysts expect the impact of any reduction in cross-border retail trade would be most felt by smaller retailers who find it more difficult to absorb exchange rate fluctuations (see graph on right) than multinational stores.

To aid shop owners, Mr McCross called on “all landlords, estate agents and property agents to have downward rent reviews to enable them to survive as there is the benefit of keeping them in business rather than having an empty shop”.

Louise Fuller, senior property manager at Savills, says: “Landlords are increasingly giving rent-free periods and offering phased rents which increase yearly, or base-and-turnover deals which have a lower base rent with a top-up based on sales each year.”

She adds, however, that maintaining a sensible balance is vital for both parties to remain in business. “Some tenants are placing undue pressure on the relationship with their landlords by looking for large contributions with turnover-only deals and short-term break clauses,” she says.

Among the larger stores, Savills confirmed the retail property market was moving, with interest remaining high for space in Victoria Square and big brand stores such as Guess and Mimco taking retail leases in Northern Ireland.

Size and location are crucial. Situated only 40 minutes from Dublin, the management of the Quays Shopping Centre, Newry, are in negotiations with a number of national and global brands seeking new tenancies. Traders in Newry continue to benefit from their close proximity to the border and the broadest retail offering in the Belfast to Dublin eco corridor.

Although southern shoppers have tailed off in Derry and Belfast, access to Newry’s retailers for shoppers both sides of the border is enhanced by improved transport links such as the A1.

Cathal Austin, centre manager for the Quays, said that “despite the difficult economic circumstances and inclement weather many of our retailers are reporting positive results for 2010”.

Even taking into account the VAT rise, the North-South price differential still leans in Northern Ireland’s favour. Exchange rate fluctuations are an obvious issue for border towns but with some Quays retailers offering preferential euro rates which outstrip the banks, Austin is optimistic but realistic about 2011. “It is a very competitive market and our retailers are poised and ready to compete for custom.”

Although challenging and uncertain, some retailers have prospered by taking advantage of the developments in the current marketplace. Helen McDermott of Oxford Economics noted that there were stores at either end of the spectrum doing well; many customers of high-end stores have not been severely affected by the recession, ‘budget’ stores are benefiting from the current squeeze on income at all levels.

The outlook improves further for those retailers not affected by the VAT rise — for example foodstuffs, children’s clothing and books are zero rated.

At Sainsbury’s, post-Christmas trading figures revealed it was ahead of the curve for grocery retailers, and the supermarket is planning three new stores in Bangor, Dundonald and Waterside, Derry.

Sainsbury’s regional operations manager Nigel McAuley said it had amended its offering to meet changing demands.

“Many of our customers are falling into what we call a ‘savvy shopper’ category whereby they might buy Basics vegetables and spend a little extra on a Taste the Difference Sunday roast joint. This helps customers manage the cost of their weekly shop.”

While Labour’s 2.5% VAT reduction in 2008/09 saw little dramatic effect on the retail sector, it will be interesting to see how the coalition’s 2.5% increase manifests itself. Rather than a stand-alone increase, it is introduced in the midst of other strains on income such as inflation, pay freezes, welfare reform, tax rises and job losses, a combination that is likely to lead to fairly flat consumer spending in 2011.

Retail trading figures for the first quarter of this year will be a key indicator of performance and while many think trading will get worse before it gets better, the overall feeling for the bigger players of the notoriously tough retail sector is one of quiet optimism for the end of 2011.

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