Part 1: The current situation
The work of the small retailer is never done and they do not have to be told the difficult times that they currently trade in. But what are the major financial issues facing an Irish retailer and how are well managed stores coping with the pressure?
The latest results from the Central Statistics Office (CSO ) show that retail sales volume increased by 1 per cent in June 2010 when compared to June 2009, but if the motor trade were excluded then there is an actual decrease of 1.3 per cent year-on-year.
Pressure from Northern Ireland
The UK VAT rate is due to rise from 17.5 per cent to 20 per cent next January, and the strength of the Euro was up to 93.57p sterling in October 2009 but has fallen to around 83.69p at the end of August 2010. These movements should alleviate some of the pressure from Northern Ireland, along with the mooted pay per mile tax on motor fuel in the Irish government’s December budget.
General economic outlook
Is the country out of recession? While Gross Domestic Product (GDP ), the measure of recovery, increased by 2.7 per cent in the first quarter of this year, when multi-national profits repatriated are excluded, Gross National Product (GNP ) actual fell by 0.5 per cent when compared to Quarter 4, 2009. Total persons on the live register were 455,000 in August 2010, an increase of 2,500 on the previous month. Therefore, while the economy may be making signs of recovery, the impact of domestic consumer spending is not likely to be positive, as indicated by the retail sales volume index.
Impact on retailers
Retailers are suffering badly; depending on the retail sector and premises location, they have experienced sales revenue decreases of up to 18 per cent when comparing the 2009 results to 2008. When adjusted for volume (a decrease of 14 per cent ), there is an extrapolated decrease of 4.7 per cent in price.
What this means is that while gross profit is down due to the decrease in customers, customers remaining are seeking lower prices which further pressurises the retail sector. Disproportionate to the larger operators, the smaller retailers may not be in a position to pass on this decrease to the supplier, and in many cases suffer the full decrease themselves.
With reduced gross profit less money is left in the till to pay the operating outflows such as:
Staff salaries
Rent, rates, insurance, light, and heat
Loan repayments
Business owners’ salary/drawings
Next week we will look at how cash flow management can help steer the retail business through the current situation.
Ronan Duffy is a chartered accountant and a director of Royal Canal Financial Control Services, Killucan, Co Westmeath. He can be contacted at [email protected].
