February Retail Sales

Retail sales in February were down 20.9% relative to a year earlier, up from a 26.6% year-over-year decline in January.  Total sales rose 5.7% in February but this was nearly all due to a partial unwinding of the horrible January motor trade sales.  Excluding the motor trade, sales were up 1.3% in February and the year-over-year decline stands at -6.9%, which is up a little from its low point of -8.5% recorded in November. 

I’m not going to write about second deriviatives or, god forbid, green shoots.  But, still, I’ll just observe that these numbers are not as horrible as I might have expected and leave those that know more about this release to add further comment.

5 thoughts on “February Retail Sales”

  1. You are correct in implying that the figures are not too bad, other than obviously those for the motor trade. There are definitely green shoots. If our beloved Government, the media or the majority of economists had any inkling of the importance of boosting consumer confidence in an effort to get people spending again, they’d devote some time to highlighting them and help to counter the George Lee effect. If George is reading this, here are nine green shoots, and I trust that he’ll mention them in the Six O’Clock News tonight:

    (a) Retail sales, other than those for the motor trade, appear to have stabilised – these are the volume indices for Nov 08 to Feb 09:

    Nov 08 106.5
    Dec 08 107.6
    Jan 09 106.5
    Feb 09 107.9

    (b) Seasonally-adjusted average manufacturing output volume in Jan and Feb 09 was 4.9% higher than in 2008 Q4 – a repeat of the Jan or Feb figures in Mar (which obviously is anyone’s guess as to whether it will occur or not) would mean that manufacturing at least had come out of recession in 2009 Q1.

    (c) Seasonally-adjusted average exports value in Jan and Feb 09 was 6.8% higher than in 2008 Q4, while seasonally-adjusted average imports value in Jan and Feb 09 was 5.5% lower than in 2008 Q4 – again, a repeat of the Jan or Feb figures in Mar (which may or may not occur) would mean a big boost to GDP from net exports in 2009 Q1.

    (d) Taking (a), (b) and (c) together, any fall in GDP in 2009 Q1 should be much smaller than in 2008 – in fact, in 2009 Q1 it looks as though, if construction and motor trades are excluded, then GDP may have stabilised or even grown slightly between 2008 Q4 and the first two months of 2009. Obviously, for that to carry through to the wole of 2009 Q1 would require the figures for Mar to be as good as those for Jan and Feb, which is obviously impossible to predict and may or may not happen.

    (e) The ISEQ rose by 18% in April – as far as I can see (and I couldn’t check every country), the ISEQ was the best-performing index in the OECD in April.

    (f) Ireland’s harmonised inflation rate in March was the lowest in the EU27.

    (g) Ireland’s merchandise trade surplus is now running at an annualised 44 billion (3.7 billion in Feb), compared with Central Bank forecast of 30 billion for 2009.

    (h) Ireland is now clearly heading for a balance-of-payments surplus in 2009, barring some unforeseen calamity in the remainder of 2009.

    (i) The increase in unemployment appears to be slowing. These are the seasonally-adjusted increases since Oct 08:

    Oct 08 15,900
    Nov 08 16,400
    Dec 08 16,400
    Jan 09 33,000
    Feb 09 26,700
    Mar 09 20,000
    Apr 09 15,800

    However, one thing omitted in most analyses of the April figures is that the increase in male unemployment slowed much more than for female unemployment. Over the years, there has often been a surge of about 2,000 to 3,000 in the number of females on the Live Register in April, with
    a corresponding drop in May, because of the Easter school holidays and
    the fact that the bulk of school employees are female. CSO seasonal-adjustment never seems to fully take it into account. We’ll have to wait until the May figures to see if this was in evidence in April. But, for the
    record the the seasonally-adjusted increases since Oct 08 for males and females were:

    Oct 08 male 11,500 , female 4,400
    Nov 08 male 13,000 , female 3,400
    Dec 08 male 12,500 , female 3,900
    Jan 09 male 22,900 , female 10,100
    Feb 09 male 18,200 , female 8,500
    Mar 09 male 13,900 , female 6,100
    Apr 09 male 9,300 , female 6,500

    As can be seen, while there was a very large drop between March and April in the male unemployment increases, that for females rose. If my theory is correct (and it might not be), then this could be explained by
    the ‘Easter school holidays’ effect mentioned above. If this is correct, then the underlying increase in female unemployment in April would have been around 4,000 (rather than the 6,500 published) and for total unemployment around 13,300 (rather than the 15,800 published)

  2. @John
    You are undoubtedly a glass half full type of guy.

    I hope you’re right that these are real green shoots and not just run of the mill monthly fluctuations.

    January and February are not good months to predict annualised retail sales. January is a sale month and depends on the level of discounting going on. February is the worst month of the year for sales. Easter moving won’t help and it will be May before we might see a real trend. Unfortunately that is the month the government has decided to take quite a lot of cash from the average taxpayer.

    My view is we will not see genuine recovery until there has been a serious shakeup right across the economy. Take retail which I know best it has a number of structural problems
    1. Over capacity: I left the world of multiple retailing back in 2006 and even then we were struggling to show like for like growth due to the amount of new retail capacity coming on stream. In just a couple of years DIY retail space jumped nearly 100%. There will have to be a reduction in retail space. There are a large number of older centres that are now unviable while the new attractive ones pay horrendous rents. We have already seen – Land of Leather; Jim Langen; Sasha; Chartbusters; Golden Disks; Classic Furniture; Principles; Virgin; Superquinn; 4Home – all in difficulty of varying degrees.
    2. High rents: At the same time capacity was increasing rents were also shooting up. Rent reviews of 70% were common even in underperforming units. At a rough estimate rents have increase approximately 400% since 1993. Rents have got to come down. If landlords won’t do it for existing tenants they will end up doing it for their replacements.
    3. Lack of profitability. A relatively small decline in sales can have a very big effect on profitability. A 10% fall in sales does not mean a 10% fall in profits as costs are basically fixed. For most retailers that sort of drop is enough to wipe out profits.
    Unfortunately we get very little information on retail profitability in Ireland. The only PLC that comments on profitability here that I know of is Grafton and they have forecast a breakeven position for 2009. The UK chains never reveal their figures for Ireland.
    4. Sterling: Agreed it is not structural and hopefully will go back to where it was but looking at the UK situation this does not seem likely for quite a while and maybe too late for some retailers in direct competition with the North.

    So it’s not just construction and the motor trade that have problems. In the good days the stronger performing stores compensated for the poor ones and allowed medium term decisions to be postponed. That is not the case any longer and the tough decisions need to be made before real recovery begins.

  3. The USA economists placed an emphasis on consumers. We should now emphasize saving, from those who have and work, from those who do not. Consumers fuelled credit demand. All that is now dead.
    Forget what was 25% or more of the NYSE. It was all to do with finance. All gone.
    The world is changed, utterly. Income now has to be related to production.
    Thorsten Veblen is no longer relevant until the next bubble.
    It follows that the recovery will not come soon. Retail of luxuries, anything that is not eaten, is in jeopardy.

  4. @Stuart: It would be interesting if you had more formal statistics to back up the contention that Ireland is ‘over-shopped’. To me, retail in Ireland looks like constrained production: relatively low output, but high prices. Cerainly, I find the view that there is too much retail compeititon in Ireland odd given the high prices we see. The constraint is likely planning permission.

    On the output side, for every 4 retail/wholesale workers in the UK, there are 3 in Ireland. Ireland ranks farely low on intl scale.

    On the prices side, are supernormal profits being earned though split between rents, owners of brands (they are taking a big share), workers and shop owners. In this scenario some retailers could have low profits, even if we are not over-shopped in aggregate.

  5. @Ronnie

    Unfortunately no I don’t. This is based on my experience. In case you hadn’t guessed I worked in the DIY warehouse sector (Both Woodies and Atlantic from 1991-2006.) I have noticed for a long time the assumption that the high prices in Irish retail result from low competition.

    The reality is too much competition can also lead to higher prices as businesses fight to survive. Atlantic Homecare when it was more or less on its own in the market back in the late 1980s had gross margins of around 10% points lower than when I left in 2006. It’s net bottom line per cent was in the mid single digit figures so no supernormal profits there.

    Rents are a factor but if you’re running a store that is making a nice profit and several new competitors turn up within a few miles of you your first target is to carry on making money. The typical result of new competition was a 10-20% drop in sales depending on how close they were to you.

    The first reaction is to reduce prices to lure customers back but while this might increase sales a bit the cannibalisation of the margin more than offsets any gain. Meanwhile the new competition (let’s call them B&Q) find it is not getting enough of the business to make money either.

    Now retail parks are opening in every little town in Ireland and your shopping hinterland is getting squeezed. Several of the stores don’t make money and probably never will and now you need the profitable ones to carry them.

    Reducing costs is not an option – rent reviews, increasing wage costs more than offset anything you did.

    So you try sourcing direct in the Far East cutting out the middle man. It works for a few products but Ireland is tiny and you can’t get the volume.

    So finally someone like me starts looking more closely at margins and particularly what B&Q are up to. And the economists are going to like this, they test the price elasticity of low priced high volume sellers. Basically no one has any idea of the price of a product that sells for <€5. I discovered for example we were selling a basic tape measure for €2.50, the competition was €4.50. We moved to €3.75. There are literally thousands of products like this. I don’t know the grocery retail sector but I’m guessing they do the same. So when Tesco tell you they have reduced the price of Paul Newman’s Chilli Sauce expect them to be getting more on the faster sellers.

    The number 1 reason in all our market research for why people choose somewhere to shop is convenience. Price came in at 4 or 5. We did regular price baskets in Atlantic and despite the fact Atlantic was cheaper than Woodies in all of them, Woodies is the more successful. We also actually worked out the same as B&Q across the basket but there were big variations on individual products.

    Check out my list of retailers going bust in my earlier comment. Look at the number of empty retail units in the new developments. There is one retail park in Sligo that has seen 4 tenants shut down in the last few months. I expect to see a lot more store closures. Long leases and trading clauses prevent the bigger retailers shutting unprofitable stores in the short term but as the older leases run out don’t expect them to renew. I’m particularly interested in older centres that will be seeing leases expire. Stillorgan for example has seen Lifestyle shut and it looks like Arnotts are going too. None of this suggests the availability of supernormal profits.

    My hope is we can get back to the stage where Irish businesses can open stand alone shops and bring back some variety to the High Street again. When I set up 2 years ago I couldn’t afford the rents so we went on line. I’d still like to open a retail outlet but this will only happen if rents fall.

    By the way the UK is not a great example to use as a comparison. They too are overshopped. They have seen a huge cull in retail businesses in the last 6 months. Do you have figures for the EU?

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