Irish retail sales rebound in May

The official headline Irish retail sales figures for May, released by the Central Statistics Office (CSO) this morning, show some light at the end of the tunnel for the retail sector.

The volume of retail sales increased by 29.5% in May when compared to April on a seasonally-adjusted basis. This was the largest monthly increase on record, following the substantial fall in the volume of retail sales recorded for March (-12.5%) and April (-35.8%) as the impact of the COVID crisis on the retail sector took hold. 

However, on an annual basis, retail volumes were still 26.6% lower in May compared with May 2019. Retail sales in May were 27.3% lower than in February before the crisis started. 

When Motor Trades are excluded, the volume of retail sales increased by 9.3% in May over the previous month but decreased by 16.2% when compared with May 2019.  

Many retail outlets remained closed in May with the exception of essential retail sectors. On the 18th of May Phase 1 of restart allowed some other sectors to reopen. These sectors included Opticians/optometrists; Sale, supply and repair of motor vehicles, motorcycles and bicycles; Hardware stores, builders' merchants and stores selling supplies and tools essential for gardening/farming/agriculture; Office products and supplies; and Electrical, IT and phone sales, repair and maintenance services.

Among the sectors showing a large volume increase between April and May were Motor Trades (+153.9%), Hardware, Paints & Glass (+92.5%), Furniture & Lighting (+85.9%) and Other Retail Sales (+69.3%). The sectors showing decreases in volume compared to April were Books, Newspapers & Stationery (-35.7%), Pharmaceuticals, Medical & Cosmetic Articles (-2.2%), Food Beverages & Tobacco (-1.9%) and Non Specialised Stores (incl. Supermarkets) (-0.6%). 

The proportion of total retail sales transacted online was 13.1% in May, a decrease compared to April (15.3%) as more outlets reopened for business. 

Although pent-up demand may have contributed to the record rise in retail sales in May, lifting restrictions may not necessarily translate into a sustained 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.  

Long queues and social distancing may be acceptable when the weather is warm, but it is hard to see consumers being willing to queue outside in the cold and rain when Winter sets in. 

Rules and regulations (wearing of face coverings, no browsing, remaining at least one metre apart etc.) are in my view going to lose retailers as many consumers as they gain. 

As such, it is difficult in my opinion to see households, in general, going on a sustained spending binge when the current restrictions are fully 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 tries to maximise 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 towards the end of April, 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 despite the sharp rebound in sales in May.