Five questions on the Irish retail industry

The insolvencies in the Irish retail industry will continue for the foreseeable future, due to the high rents charged to most retail operators in most towns and cities in Ireland.
Analisis Credito y Caución
Madrid - 25-ago-2010

How has the retail sector performed in the last six months?

There are signs that consumer confidence is returning and spending levels are increasing, but this confidence is being undermined by concerns over job security, personal debt reduction, cautious saving, higher taxation levels and lower wages. Until recently, VAT was lower in the UK, with the effect of driving thousands of shoppers to Britain, thus taking millions of spending value out of the Irish economy and adding to the financial pressures for companies operating within this sector.

Problems in retail can be seen in the number of new retail centres that have either been delayed or deferred until the economy picks up. shopping centre space grew from 200,000 square metres in 1996 to just over 2,000,000 last year, but this growth was clearly unsustainable as existing units became available because of the failure of tenants and difficulties in obtaining finance to begin or complete new projects.

What is the current trend in insolvencies?

The strains within the retail sector are evidenced by the 95 insolvencies within this sector up to 30 June, accounting for 12% of the total so far this year. These insolvencies will continue for the foreseeable future, due to the high rents charged to most retail operators in most towns and cities in Ireland. Credito y Caucións experience with retail in Ireland, through the Atradius Group, has been mixed: we have seen some large insolvencies so far this year many of whom have cited rent as the main obstacle to their ability to trade. Others have successfully exited following a Court approved reorganisation.

What should companies selling products into the retail sector pay particular attention to?

Warning signs to be aware of would be gradual slowing in payments and refer to drawer cheques.

What is Crédito y Caucións short term outlook for the retail sector?

We see continuing high levels of insolvency and many firms downsizing as consumer spending increases only slowly. Access to credit banking facilities is paramount to businesses survival. However, moves are afoot to change the basis of rent reviews which, if passed, should assist this hard pressed sector. Some of the tax changes in the recent UK budget, in particular VAT, which increased to 17.5% on January 2010 and will rise further - to 20% - in January 2011, will further deter the many thousands of Irish shoppers from travelling to Northern Ireland, and thus help the Irish retail sector.

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