The flight of shoppers across the Irish border claimed its first major victim yesterday when Superquinn announced it was closing its Dundalk store with the loss of 68 jobs -- and cutting a further 332 jobs in its other stores.
The company's remaining 2,900 workers will be asked to agree to more flexible working conditions.
Superquinn blamed the closure of the Dundalk supermarket, the same town from which the Superquinn empire began in 1960, on the droves of shoppers going north to shop for cheaper groceries in Newry.
"It breaks any retailer's heart to close a store, but recent developments in cross-border shopping have left us with no alternative. It is our hope to avoid any other closures as part of the programme," said Superquinn chairman Simon Burke.
He said the closure of the store at the end of February and the loss of 400 jobs were necessary to secure the future of the business and to protect the remaining 2,900 workers.
Independent Senator Feargal Quinn who, along with his father Eamonn, founded the supermarket chain almost 50 years ago, and recently sold it for €450m, refused to comment last night.
Opposition politicians described the closure of the Dundalk store as "particularly ominous" for other outlets operating within driving distance of the Border.
Dundalk has been particularly hard hit by the fall in sterling and strengthening euro which saw thousands of shoppers bypass it in favour of Newry in the run-up to Christmas.
While the main road into the Co Down town was gridlocked with motorists, shopping centres immediately south of the border were left empty.
Labour spokesman on enterprise, trade and employment, Willie Penrose, said that unless something is done to bring the VAT rate in line with that of the North, more jobs will be lost.
"I have no doubt that the Government decision to increase VAT in the October Budget, just as VAT was being decreased in Northern Ireland, has been a significant contributing factor in these losses.
"This is another 400 people who want to work and who will now find themselves on the dole with all the social and economic consequences this will mean for their families."
Fine Gael's Leo Varadkar said the Irish government needs to act immediately to help sustain jobs in the retail sector by cutting VAT, reducing energy costs and imposing a freeze on local authority rates.
"It is likely that this is going to be the first in a series of major job losses in the retail sector -- 2008 was dominated by losses in the construction sector and 2009 is likely to see a collapse in retail, hotels, catering and banking sectors unless urgent Government action is taken," he warned.
Bill Tosh, chief executive of the Dundalk Chamber of Commerce, said he had recently carried out a price comparison survey and found that a typical basket of goods was around 60pc more expensive in Dundalk compared to Newry. It cost €134 in Dundalk, compared to just €84 north of the Border.
"You'll not be minded to splash out €134 when you can get it cheaper elsewhere. It's obscene," he said.
He warned that there was "serious profiteering" going on among supermarkets.
Gerry Light, assistant general secretary of the trade union Mandate, which represents the majority of Superquinn workers, said he was disappointed but not completely surprised by the job losses.
"I would urge the government to bring in incentives for people to shop local," he said.