Retail sales fall 7.4% as consumers cut spending

CONSUMERS CURTAILED their spending in October, as the volume of retail sales fell by an annual rate of 7.4 per cent, according to the Central Statistics Office (CSO).

A collapse in the motor trade, plummeting furniture sales and subdued bar sales all contributed to the decline in retail spending, as consumers responded to recession by shunning shop discounts.

Job losses in the retail sector are now expected in the new year.

Sales volumes measured by the retail sales index fell by 0.6 per cent in October compared to the month before, bringing the annual rate of decline to the lowest level since 1984.

Excluding car sales, sales are now down 6.2 per cent - the worst decline since 1975.

Ulster Bank economist Lynsey Clemenger said the data highlighted the "ongoing reluctance" of Irish consumers to spend, which she said was bad news in the run-up to the important Christmas period and a trend that is set to continue well into 2009.

Sales of furniture and lighting have plunged 24 per cent over the past year as the housing market came to a standstill, while sales of electrical goods have fallen 17 per cent.

The CSO's "books, newspapers and stationery" category is down 18 per cent year-on-year, while sales of food, beverages and tobacco have dropped 7 per cent.

Paul Kelly, director of Ibec-group Food and Drink Industry Ireland, called on the Government to take urgent action to protect the Irish food sector jobs by reforming business costs, reducing the VAT differential with the UK, and cutting employment taxes.

In further evidence that consumers have become increasingly cash-strapped, bar sales fell 2.3 per cent in October and are now down 11 per cent annually.

"Given the labour market environment, it comes as no surprise that discretionary spending on such extravagances as nights out has been sharply curtailed also," said Dermot O'Leary, economist at Goodbody Stockbrokers.

The data reveals the extent to which retailers have slashed prices in a bid to drag consumers back to the tills: sales in specialised clothing and footwear stores fell 3 per cent in volume terms over the past 12 months, but the value of the sales dropped 9 per cent.

Davy Research economist Rossa White said the unprecedented level of pre-Christmas sales suggested there would be a shake-out in the retail sector, which employs an estimated 300,000 people, in the first quarter of 2009.

Mr White expects that total consumer spending, which comprises both retail sales and spending on services, will drop 3.8 per cent in volume next year, with the retail sales element shrinking by another 5 per cent in volume.

Mr O'Leary said his forecast of a 1 per cent decline in spending in 2009 was beginning to look optimistic, but he added that spending on services historically holds up better during recessions.

"It is clear, however, that while this recession was investment-led, sharply lower consumer spending is deepening it," Mr O'Leary said.

Ulster Bank forecasts a 3 per cent decline in consumer spending next year, which Ms Clemenger said would be characterised by "heightened consumer caution and saving, and a further slowdown in spending on both goods and services".