Irish retail sales down just over 11% in real terms year-on-year in March

The official headline Irish retail sales figures for March, released by the Central Statistics Office (CSO) this morning, make for sobering reading.

Data for the index are collected monthly from a sample of 1,600 retail enterprises. Despite the current difficult circumstances, many retailers have continued to supply the CSO with this information. 

However, due to temporary closure and the difficulties faced by businesses, the response rate for the March survey was about five percentage points lower than would normally be the case. The March response covered about 53% of total retail sales in the economy.

Headline sales were down 12.7% in the month, the largest monthly decline since January 2009. They were 11.1% lower in the year in volume terms. In the first quarter of 2020, sales were 1.9% lower on average than the same period of 2019.

Excluding motor trades, retail sales were down 1.9% in the month and 0.6% in the year. But “core” sales were 1.0% higher on average year-on-year in the January-March period. 

The worrying thing for retailers is that the lockdown only started in the middle of March, so worse is yet to come, particularly in April, where we’ve had a full lockdown in the month

Of course not all retail sectors suffered declines in March, with grocery sales, in particular, up sharply. The CSO data are seasonally-adjusted and one would have to question the usefulness of adjusted data amid the Covid-19 pandemic. Unadjusted data would in my view highlight much better the stark decline in consumer spending for each sector during the crisis. As the late Charles Haughey once commented on the jobless numbers “you cannot tell an unemployed person that seasonally-adjusted they’re working”.

That said, even the adjusted numbers show steep falls in a number of sectors. According to the CSO figures, the sectors with the largest monthly volume decreases in March were Bars (-53.1%) and Clothing, Footwear & Textiles (-49.2%). Meanwhile, the sectors with the biggest monthly increases in the month were Food, Beverages & Tobacco in specialised stores, excluding supermarkets (+17.0%), and Non-Specialised Stores, including supermarkets (+14.0%). 

With the patience of some now beginning to wear thin, attention is turning to when and how the lockdown can be lifted. Health officials worry that easing restrictions too soon could see a resurgence of the virus, but a drawn-out lockdown will inevitably lead to an unprecedented drop-off in economic activity.

However, lifting restrictions may not necessarily translate into a rebound in activity. As China’s experience shows, the pandemic’s psychological legacy can lead to an uneven recovery especially if people don’t feel safe returning to their normal routines. 

At the end of the day, we need level heads and common sense to get out of this mess. Already we’ve had suggestions from some economic commentators about the idea of “helicopter money” or giving every household a voucher to be spent in the shops on Irish goods. Well, maybe it might be a good idea before making any policy decisions to ask consumers themselves, as to what might encourage them to spend rather than save. 

But it is hard to see all households going on a spending binge when the current restrictions are relaxed as some are definitely going to remain health conscious and want to avoid mass gatherings for a while to come. Therefore, it is imperative that the Government maximises what potential consumer spending there is. One of the interesting developments in the aftermath of the financial crisis was the sharp increase in Irish household deposits at financial institutions to record levels, despite interest rates being effectively zero, and therefore offering no return. Further saving is not what we need now. 

Older people by their nature tend to save more but the worry is that the younger generation, or at least some, may have realised during the lockdown that a vast amount of saving can be made (e.g. for the purchase of a house in the future) by not spending aimlessly on things they don’t actually need.

The economic reality is that retailers are facing an unprecedented challenge in the months ahead, and unfortunately, there will be many casualties, with a lot of businesses likely to go to the wall. 

In its Stability Programme Update, published last week, the Department of Finance forecast a fall of just over 14% in personal consumption on goods and services this year and an increase of 8.7% in real terms in 2021. Whatever about the level of decline in 2020, a rebound in spending of almost 9% next year looks overly-optimistic to me all things considered.

Even with the best intentions of policymakers and consumers, the overall outlook for the retail sector looks gloomy. During the lockdown, there has been plenty of time to listen to songs on the radio. For some retailers, they will embark on “The Long and Winding Road” to recovery, but for others it will simply be the “Road To Nowhere”.