Caveat: Brexit could get UK retailers’ tills ringing to an Irish tune
Irish divisions of big UK retailers could become sweet spots for parent companies
With sterling down, profits and cashflow generated in euro in Ireland have, overnight, become more important to the big UK retailers in Ireland. Photograph: REUTERS/Luke MacGregor
Mike Ashley: UK retailing tycoon. Photograph: Joe Giddens/PA Wire.
Conal Mac Coille, chief economist at Davy stockbrokers: “UK retailers will initially leave their euro denominated prices unchanged, taking their competitive gain from the weaker exchange rate in the form of higher profit margins.”
Denis O’Brien: Digicel is growing organically
Christoph Mueller: sacked 6,000 workers in a cost-cutting drive, making him even less popular with the locals. Photograph: REUTERS/Joe Skipper/File Photo
Smithwicks is to become the first beer to display “nutritional information” on its labels
The plunge in sterling and the expected prolonged weakness of the currency means the existing Irish divisions of the big UK retailers could become sweet spots for their British parent companies.
If Ireland already appeared an attractive location for UK retailing tycoons such as Mike Ashley before the Brexit vote, the State is going to look like a tray of fresh pints at closing time now. Huzzah!
With sterling down, profits and cashflow generated in euro in Ireland have, overnight, become more important to the big UK retailers. British imports into this State have effectively become cheaper, so, until they cut their prices at Irish tills, the UK retailers in Ireland can make hay on the exchange rate difference.
As Conall Mac Coille, chief economist at Davy stockbrokers, put it: “UK retailers will initially leave their euro denominated prices unchanged, taking their competitive gain from the weaker exchange rate in the form of higher profit margins.”
This, he confirmed, makes “the Irish arms of their operations more valuable” to their group.
Almost all of the big British retailers have significant operations here. Tesco is the largest private sector employer in the State, with more than 14,000 employees and 150 stores. Argos, M&S, B&Q, Homebase, Next, Poundland/Dealz, PC World... they’re all prominent here.
It is difficult to predict what effect the currency issue might have on the behaviour of such British retailers in Ireland.
Might some of them be tempted to squeeze their local euro cost bases even further, maximising the euro profits to be fed back to their UK motherships, where they could be converted into ever bigger piles of sterling?
If so, it could herald bad news for some Irish employees of UK retailers. Debenhams, for example, prior to Brexit was already putting its Irish operation through the car wash of examinership, citing a need to reduce rent and staff costs.
Tesco has also been no slouch in recent times when it comes to trimming its Irish costs. Just ask its 1,000 longest-serving staff members, who were either shepherded towards redundancy or presented with inferior contracts earlier this year. Another, more optimistic scenario is that the British retailers might invest further in their Irish operations in an attempt to boost revenues and profits.
This would make most sense if the local operations were able to fund further investment themselves, without the UK-based parent groups having to stump up by converting sterling into euro.
While the retail sector in Ireland is expanding, or at least it was until Boris Johnson lit a match under everybody’s economic forecasts, it is also insanely competitive. Perhaps the most likely outcome of sterling’s devaluation on the behaviour of British retailers in Ireland is that eventually they will use the wriggle room to cut prices in this State, taking share from indigenous competitors.
Mac Coille has squarely plumped for the last option as the best bet: “...given intense competition in the retail sector generally, the weaker sterling exchange rate will eventually be passed through into lower prices for Irish consumers,” he writes.
There are few silver linings for Irish consumers from Brexit, but cheaper prices at UK-owned shops would be one. This would obviously increase pressure on Irish-owned competitors, some of which would be forced to respond in kind.
Conversely, the sterling exchange rate issue could raise concerns for the handful of Irish retailers growing in the UK.
Smyths Toys has been expanding at a ferocious rate in Britain in recent years, with sales of £256 million in 2014 and growing at 40 per cent. When those sterling profits are converted back into euro, it will be worth less to the Smyth brothers back in Mayo. Similarly, Dunnes Stores was rumoured in some quarters to have been plotting further expansion in Britain.
Back in Ireland, British retailers continue to eye up the local landscape. Ashley, in particular, has been extremely active recently, snapping up Boyers store in Dublin city centre and taking full control of the Heatons chain of department stores.
He even chipped in with a proposed bid to buy Debenhams Ireland out of examinership from under the nose of its parent group. His bid didn’t succeed, but as he showed during the Elverys examinership in 2014, that doesn’t necessarily mean Ashley will walk away quietly.
Footnotes . . .
As its results yesterday show, Denis O’Brien’s Digicel is growing organically albeit it is being buffeted by currency headwinds. In Haiti, however, one of the telco’s main markets, the company is facing an altogether more sinister challenge. Digicel has quite literally come under fire in the troubled nation, with tragic results.
In the midst of political upheaval in Haiti, right-wing militants have in the last week started attacking targets such as foreign-owned businesses. According to local reports, last Friday gunmen fired six bullets at Digicel’s headquarters in Port Au Prince, as well as several more at the Marriott hotel whose construction was championed by O’Brien. Other companies were also targeted.
Earlier on Friday, two Digicel employees who were on their way to a bank were also attacked by gunmen on motorcycles. Sadly, one of the company’s staff died in the attack and another was wounded. A Swedish tourist also died in a separate shooting.
“We are symbols of foreign investment in Haiti. I think these people do not realise the effect it will have on the country,” said Maarten Boute, chairman of Digicel Haiti.
“It’s a negative message sent to other potential foreign investors. We condemn such violent acts of destabilisation aimed at creating a climate of insecurity. I think there is a certain segment of the population that is trying to send a clear message of destabilisation.”
Hopefully the situation calms down soon and nobody else gets hurt.
So, former Ryanair executive Peter Bellew is to replace Christoph Mueller as chief executive of troubled Malaysia Airlines? He had better strap himself in for a turbulent welcome from local media and workers’ groups.
When ex-Aer Lingus boss Mueller, a German, was appointed to the top job in 2014, he was greeted with a storm of protest from some Malaysian politicians and unions, who couldn’t stomach the thought of a foreigner, or orang putih (white man) being parachuted in the run of their national airline.
Mueller then promptly sacked 6,000 workers in a cost-cutting drive, making him even less popular with the locals.
Since Mueller announced he was quitting Malaysia, he gave an interview to German broadcaster Deutsche Welle, in which, with his foot firmly in his mouth, he said hordes of staff at the airline had “nothing to do” and were sleeping on the job.
Cue another round of angry outbursts from some Malaysian groups about foreigners insulting the locals. Perkasa, an ethnic Malay group, called for Mueller to be ejected before his notice was up and for all foreign staff to have their contracts ripped up.
Bellew, who was Ryanair’s director of flight operations, was recruited as chief operating officer at Malaysia last year by Mueller. Instead of ripping up his contract, as demanded by Perkasa, the airline promoted him to the top job.
It could be stormy. Then again, he used to work for Michael O’Leary, so it might end up a doddle.
Diageo has announced that Smithwicks is to become the first beer to display “nutritional information” on its labels. The red ale will tell its customers the calorie count of the beer as well the alcohol “per serving”.
“[This] is being introduced to support consumers in making more informed and clear choices when purchasing alcohol products,” said Diageo.
Bord Bia has welcomed the move as an “exemplary initiative”. Personally, I have never wondered how nutritious my beer was, nor the kebab afterwards.