In A Retail Jungle Will Only The Fittest Survive?

11 March 2009

As with all parts of the economy, the retail sector is finding life difficult, which is hardly surprising in the light of current recessionary conditions with the prospect of rising unemployment having a stark impact on disposable income and consumer spending patterns.

From a Northern Irish perspective, we should be in a relatively more favourable position since we have a higher proportion of public sector employment than other regions of the UK. Moreover, significant levels of cross-border trade are also acting as a buttress with border areas benefitting most notably during the Christmas trading period albeit there was clear evidence of shoppers from the Republic penetrating deeper into the province, and in particular targeting Belfast city centre. Interestingly, Irish shoppers are continuing to flock northwards although the main expenditure seems allocated to food, alcohol and “big-ticket” items such as cars, furniture, electrical and digital goods.

“Sound bites” regarding the level of grocery trade heading north are quite startling with some stores north of the border reporting turnovers in the region of £3 million per week in the run up to Christmas. In addition, non-resident operators, Sainsbury's and Asda, are each estimated to have secured a 2-3% share of the Southern Irish food market. The local food sector while far from recession-proof is showing evidence of growth as the multiples including Sainsbury’s, Asda, Tesco and Lidl continue to expand their presence. Convenience operators such as Spar, Centra, Mace, Vivo and SuperValu all appear to be holding their own and continue to invest selectively in new stores.

Pic: Sainsbury's

In terms of other sectors, it looks as if the more value-orientated retailers such as In Store (Poundstretcher), Ethel Austin, B&M Bargains and Poundland will thrive and prosper. All of these value retailers with the exception of In-Store (Poundstretcher) are new entrants to Northern Ireland and reflects the growth of this sector in current market conditions.

Inevitably, our local retail sector has been affected by store closures with the loss of chains Woolworths and Zavvi being two of the most high-profile casualties to date. Undeniably, the mid to high-end sector is struggling while bulky goods, out-of-town retailers are also finding the going tough. With no “quick fix” on the horizon, the year ahead promises to be every bit as testing as 2008, however, we expect to see no immediate decrease in the numbers of Irish shoppers crossing the border, particularly if favourable currency exchange rates and pricing differential levels between northern and southern Ireland prevail. Similarly, the value retailers will continue in the ascendancy with the high-end sector continuing to feel the pressure.

There is no doubt that in the present economic climate we are going to experience uncertainty within the retail sector. Vacancy levels will continue to edge upwards as businesses fail with reduced take-up of vacant units from potential new occupiers. This will be evident in shopping centres and High Streets across the province placing landlords under increasing pressure to secure income from their vacant property. The real result will be increased incentives for tenants along with flexible terms and true rental levels falling back.

Current market conditions may not be pretty, but the reality is that retail is a highly dynamic business regardless of the economic climate. Current market pressures will dictate that in order to survive, retailers and landlords alike will need to use all of their experience combined with an ability to adapt quickly. Failure to do so could be fatal.

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