THE EVOLUTION OF IRISH RETAIL ‘THE RETAILER’S PERSPECTIVE’

An insight into the views and expectations of Ireland’s retailers

AN

OVERVIEW

OF TH

E RETAIL SEC

TOR

An Overview of the Retail Sector

The Irish Retail SectorThe retail sector is Ireland’s largest employer. It employs c. 285,000 people, accounting for 14% of total employment. With a footprint in every town and village in Ireland, it is the country’s most geographically and socially diverse industry. The sector is the biggest contributor to the Irish Exchequer, generating 22% of total tax receipts in Ireland; this is 66% higher than Ireland’s second largest sector, financial services, which accounts for 13%.

Overview of Q1 2019Growth is evident for Q1 2019 both in terms of the value and the volume of sales versus this time last year. This is partially attributed to better weather conditions versus the same period last year, when the ‘beast from the east’ swept the country. There are increases across all categories (with the exception of Department Stores) versus this period last year. Growth was highest in the Furniture & Lighting category, followed by Hardware and Electrical goods.

This quarter saw some good news for the Clothing, Textiles & Footwear category as the value of sales increased overall by 6.3% and volumes have also shown an overall growth of 8%.

Q1 was a positive start to the year for the Furniture & Lighting category. This category continues to exhibit strong growth. The difference in value to volume in sales is beginning to converge, indicating that consumers are spending money on home improvements even if there are fewer promotional offers available.

The first quarter of 2019 also experienced significant growth in the Electrical goods category. There is significant difference between the growth rate of sales volumes and value, which is partially attributed to the deep discounting that has become apparent in this category.

Preface

Jenny Donnelly AssociateQRE

QRE in conjunction with Finance Ireland are very pleased to present this qualitative study into the views of retailers in the current market. Interviews were conducted with predominantly Irish retailers across the food & beverage, grocery and fashion sectors, in order to provide an insight into the trends, challenges and outlooks within the sector. Together with recent retail data we set out commentary on the findings of this study.

We would like to take this opportunity to sincerely thank the various parties who participated in this study.

Consumer SentimentRecent data indicates that household spend was up 6.4% year on year in Q4 2018; this implies growth in incomes, with retail spending up 4.3% in Q1 2019. It is suggested that increased employment levels, more people spending and price discounting are driving retail sales. According to the CSO, unemployment fell to an 11 year low of 5.4% in March. Irish Consumer Sentiment illustrated slight caution in April 2019, with the index dipping to 87.7 from 93.1 points. However, this still compares with the long-term survey average of 88.1 points. The slight decline could be reflective of global economic uncertainty and the extension of Brexit following a strong increase in March. Given the rising population and employment, the outlook for 2019 is positive with increases expected in consumer spending. Visa’s Irish Consumer Spending Index which includes cash, cheques and electronic payments has shown an increase of 1.2% in April 2019, year on year, following a 2.7% increase in March 2019. This followed a decline in February so it is positive to see two successive increases. E-commerce spending increased 2.2% on an annual basis to April 2019.

% change on previous period

-10 -5 0 5 10 15 20

5.3

Annual % change

15.1

Supermarkets, non. Specialised Stores

Department Stores

Food, Beverage & Tobacco

Fuel

Pharmaceuticals, Medical & Cosmetics

Clothing, Footwear & Textiles

Furniture, Lighting & Glass

Hardware, Paints

Electrical Goods

Books, Newspapers & Stationery

Other Retail Sales

4.71.5

-1.6 1.9

-3.9 -2.6

-1.8 1

1.5

4.6 6.5

3.3

4.6 8.5

-2.4 7.7

2.7 6.7

7.86.5

Supermarkets, non. Specialised Stores

Department Stores

Food, Beverage & Tobacco

Fuel

Pharmaceuticals, Medical & Cosmetics

Clothing, Footwear & Textiles

Furniture, Lighting & Glass

Hardware, Paints

Electrical Goods

Books, Newspapers & Stationery

Other Retail Sales

% change on previous period

-10 -5 0 10 20 30 40 50

7.1

0

Annual % change

36.16.6

20.9

5.3 2

-.4 3.5

-2.2 -.2

1.5 3.8

-.4

5.7 8

4.9

4.5 9.7

19.9

.9 4.2

Value of Sales - Q1 2019

Volume of Sales - Q1 2019

Source CSO

AN

OVERVIEW

OF TH

E RETAIL SEC

TOR

AN

OVERVIEW

OF TH

E RETAIL SEC

TOR

Economic Impacts on the Retail MarketEmploymentWith rising employment levels and positive net migration, it’s not surprising that the majority of retailers have noticed a surge in the availability of staff. Despite this, certain sectors continue to experience challenges on this front – food & beverage, for example, where staff retention remains an issue.

There was agreement across all sectors that innovation and training were key to both staff retention and maximising customer experience. Harnessing technology to improve employee engagement and drive efficiencies was considered paramount.

Disposable IncomeRising employment levels have resulted in a noticeable increase in disposable income with consumer spending expected to rise by approximately 2% this year. Retailers have noticed an increase in spending, particularly in the food and beverage sector, and rising incomes have also driven unique lifestyle trends, as evidenced by the popularity of operations like the Stella Cinema in Rathmines. At the same time, the surge in residential rents continues to be of concern to the retail industry as this inevitably impacts discretionary income levels.

Economic UncertaintyWith Brexit looming, a significant number of retailers raised concerns about potential impacts to their operations, particularly supply chains. It remains unclear how importing goods and transportation will be affected, but there is clearly apprehension on this point, and a number of suppliers have carried out their own studies seeking to assess potential threats and identify possible solutions. Bulk stocking of goods is also apparent in an attempt to avoid an empty shelf scenario.

Although economic turmoil in the UK has been in full focus for many months, the majority of retailers in this study are Irish-based, and highlighted that the impacts on the retail market seen in the UK have not yet been as evident in the Irish market.

Insights into the Views of Retailers in the Current Market

Consumer BehaviourChanging consumer behaviour is evident across all sectors. Consumers want more than a mundane shopping experience as expectations have shifted to a focus on enhanced instore experience, accessibility and first-rate customer service. Technology, employment growth, value-conscious consumers, demographics and competition in the market are all considered drivers of these trends.

INSIG

HTS FRO

M TH

E RETAILERS

INSIG

HTS FRO

M TH

E RETAILERS

Impact of Online SalesThe surge in online shopping (currently accountable for approximately 10% of Irish sales) was a consistent topic of discussion with the various retailers. It is apparent that those retailers who embrace the online sales opportunity can significantly increase turnover - and a consensus is emerging that e-commerce can be used to support bricks and mortar, rather than replacing it. Thus, investment in online platforms appears to be an important component of success.

In fact, the majority of retailers interviewed for this study have established a dedicated team to support online sales and meet customer expectations. Distribution methods and delivery timelines are key factors, while having affiliates and utilising social media to support customer service also play an important role. Equally, a ‘digital-first’ mindset is important as a business progresses – online factors must be considered even at product development stage.

Within the food and beverage sector specifically, third party delivery services like Just Eat and Deliveroo have shaped and subsequently dominated the online delivery environment. Unsurprisingly, a number of the operators taking part in this study currently utilise these providers and reported positive impacts to overall sales. The grocery sector has also seen technology and digitisation become fundamental to both business growth and customer satisfaction. Self-scan machines, apple pay, contactless and google pay can optimise speed and customer experience. Regarding the fashion sector, competition from large online fashion retailers such as ASOS, fashion discounting and growing quantity has effected the fashion industry and so adapting to the online sales revolution is important.

TrendsTrends within the retail market heavily impact the industry. According to the retailers we interviewed, the food & beverage sector has seen a significant move towards healthy eating and a growing awareness of where products are sourced. Dietary requirements, and vegan diets in particular, have become hugely topical, and are increasingly becoming a necessity on menus. For the grocery industry, it is vital to understand – and subsequently tap into – current and emerging food trends. All-day catering and ‘grab-and-go’ solutions have become an important factor in business models in this sector and harnessing trends can have a significant positive impact on businesses. Fashion has also been affected by the increasing consumer focus on health and wellbeing, with sportswear and lifestyle becoming popular choices.

Environmental issues have also shot up the agenda and consumers expect retailers to have a coherent plan in place around their impact on the environment, with a particular focus on compostable packaging and manufacturing processes.

INSIG

HTS FRO

M TH

E RETAILERS

There was consensus among the retailers that high-volume business models will continue to be attracted to the high street for brand recognition and accessibility. Suburban high streets continue to be particularly appealing to food & beverage providers, as well as lifestyle-type operators.

In order to reduce the threat of competition and enhance customer experience, retailers felt that having the right tenant mix within a scheme/high street was an important factor. E-commerce figures quoted (10% of Irish Sales) include in-store ‘click & collect’ and many of those consulted stressed the benefits of such an omni-channel approach which maximises online sales while also encouraging in-store footfall. This allows the bricks and mortar offering to become an important part of the online shopping experience.

Property requirements

INSIG

HTS FRO

M TH

E RETAILERS

INSIG

HTS FRO

M TH

E RETAILERS

INSIG

HTS FRO

M TH

E RETAILERS

Retail as an InvestmentThe retail sector accounted for 31% of Q1 investment turnover with approx. 15 transactions complete. Shopping centres featured prominently, including Fairgreen Shopping Centre, Mullingar Shopping Centre, Orwell Shopping Centre in Templeogue and a 25% interest in Pavilions Shopping Centre. Interestingly, retail out-performed the residential sector in Q1 given the large lot sizes transacted.

With increased demand and yield stabilisation, investors are now seeing value in the retail sector. Further supply is coming on stream with the refurbishment and redevelopment of existing schemes, such as dated neighbourhood centres. Investors are also seeing opportunities for retail schemes with PRS potential overhead.

Strong occupier demand will continue to drive retail investment throughout the year with investors seeking well-located, strong covenant and income-secure assets.

Retail sector is merely evolving and

realigning

Embracing the online shopping

opportunity

Providing accessible and

enhanced instore experiences

Adapting to various trends and consumer behaviours is key to

success

Evolving Adapting Online Accessibility

“ ”

Key FindingsYield Profile

3.25%Grafton Street

3.75%Henry Street

5.5%Secondary City Centre

5.75%Prime suburban

7%Secondary Suburban

4.75%Prime Shopping Centres

7%Provincial Shopping Centres

4.75%Prime Retail Parks

7%Provincial Retail Parks