German discounters the big winners in mostly dismal 2013 for Irish retailers

The retail sector was the laggard of the Irish economy in 2013. Consumer sentiment may have risen to a five-year high on the back of the nascent economic uptick, but it didn’t translate into a stampede of shoppers rushing back to the tills.

The first half of 2013 provided retailers with little or no solace from the misery of the past few years – consumer spending kept its now familiar downwards trajectory, dipping 1.2 per cent by June as the sector bumped along the bottom.

There were clear signs of life in the second half of the year, however. Retail sales rose 4 per cent in the third quarter. Imports also rose 6.8 per cent in the latest CSO data, indicating that shoppers are buying more consumer goods. Consumer spending should rise about 0.4 per cent over the year, it is predicted.

In the €9 billion grocery trade, the two big stories of 2013 were the alarming fall-off in Tesco's Irish sales, and the relentless onwards march of the German discounters Aldi and Lidl. Competition in the trade – always intense – has descended into a war of attrition with pricing as the main weapon.

As 2013 drew to a close, Tesco was in a real pickle in this country. In February it reported Irish sales of €3.15 billion (including non-grocery, such as petrol), but its performance has gone downhill since.

By the third quarter, Tesco’s sales had slipped by 8.1 per cent, according to its latest trading update. Kantar Worldpanel estimates its market share is now at 26.5 per cent, down from a Q3 2012 peak of 29 per cent.

In an attempt to staunch the flow, earlier this year Tesco introduced its ‘price promise’ to match or beat prices from Aldi and Lidl, or refund the difference of up to €10 with a customer’s next Tesco shop.

The move sparked a ferocious response from Tesco's rivals, especially Dunnes Stores. It reversed a negative trend in its market share with a massive voucher scheme, posting money-off coupons to its loyal customers and boosting its market share to 23.6 per cent.

Aldi increased its market share by 20 per cent during the year, and now holds fourth spot with 7.4 per cent of the market. Lidl’s growth rate, while still impressive, is only about half that of Aldi – Lidl’s slice of the grocery market grew at a rate of 8 per cent during the year to a November share of 6.9 per cent.

Musgrave also had an eventful 2013. Its SuperValu chain, well entrenched in the regions, held its share steady at about 19.4 per cent throughout the year. Superquinn, which it bought in 2011, also held firm at about 5.2 per cent.

Musgrave

In August, however, Musgrave announced

it would ditch the Superquinn name in February 2014 and it is currently in the process of converting all 14 stores to SuperValu. It also announced more than 100 job cuts at Superquinn’s head office. Musgrave also recently confirmed it is also examining whether to provide financial products, such as insurance, from its network of stores

In the convenience store sector, Musgrave's Centra faced stiff competition from BWG, the owner of Spar and Mace. Tesco also targeted the convenience sector, opening a swathe of new Tesco Express stores, which are of a smaller format than its main outlets.

In November, BWG received a boost with a €100 million write-down from its lenders related to the fall-off in its property values. It held sales steady at about €1.2 billion.

At ADM Londis, its like-for-like sales increased 2.5 per cent in the early part of the year, as it continued to hold its own against its bigger rivals. This month, it joined the Stonehouse buying consortium, alongside Gala and Costcutter

Outside of the grocery sector, the trend among big retail chains to seek court protection while reducing their boomtime rents continued.

In January, the British-owned DIY chain B&Q entered examinership. It exited the process in May, saving more than 600 jobs at its eight Irish outlets. In March, it was the turn of Monsoon, the fashion and accessories retailer. It emerged from examinership in June with 11 outlets still trading, after shuttering seven unprofitable stores. Homebase took the plunge in July, and emerged in October after shutting two of its 15 Irish stores.

Half of the 24 Pamela Scott ladies fashion stores went into examinership in January, emerging from the process in May after writing down its upward only rents. A-Wear entered examinership in October when Jack Stein, its new owner, floated a plan to source cheaper clothes from abroad. The plan was abandoned last month, however, and A-Wear entered receivership last month.

Hilco, the restructuring specialist, prowled the market this year for distressed retail assets, snapping up the Irish arm of the music store chain HMV and also Xtra-vision, the movie rental outfit.

Both collapsed companies blamed high rents, in part, for their difficulties. In October, a glimmer of light for small retailers labouring under upward-only rents appeared. The Government announced it would fast-track legislation to introduce an “examinership-light” process in the circuit courts, which retailer may be able to avail of to get their leases written down.

The country's three best-known department stores – Clerys, Arnotts and Brown Thomas – all had an eventful year.

Clerys, owned by the US firm Gordon Brothers, closed from July to December after its roof collapsed during heavy rains. The property loans attached to Arnotts changed hands this month, setting the scene for an uncertain 2014 in terms of its future ownership.

Noel Smyth, the developer, teamed up with the owner of Selfridge's and Brown Thomas to buy the €140 million of Arnotts loans held by Ulster Bank, while Apollo Global Management, another US firm, bought the €230 million mortgage held by IBRC. Brown Thomas kept its nose clean in 2013, and this month reported a rise in annual sales to €143 million, with an operating profit of €6 million.

Looking towards the next 12 months, the fate of the long-mooted statutory code of conduct governing relations between suppliers and retailers hangs in the balance.

Intense lobbying from the big supermarkets appears to have slowed the process down. A flare-up over the Christmas period when retailers launched a vegetable price war at ridiculously low prices, has put the issue firmly back on the agenda of politicians, under pressure from farming groups.

A hardy annual, the code of conduct issue may finally reach full bloom in 2014.

The fate of Arnotts, a Dublin institution, is another one to watch this year. Smyth's consortium, again with the backing of the Weston family behind Brown Thomas, made a failed bid to buy the IBRC loans but Apollo beat them to it. Both will soon sit on the share register, when the loans transfer to equity.

Iceland

Arnotts, which desperately needs a period of sustained stability to regain its focus and former glory, could become the object of a tug-of-war all over again.

The dark horse for 2014 could be Iceland, the discount food retailer – ubiquitous in Britain – that has dipped its toe into the Irish market before.

Malcolm Walker, its eccentric co-founder, regained control of the Irish franchise in 2013, and has promised to open up to 50 stores here. The Aldi/Lidl story has proven that Irish consumers can be won over by a compelling discount offering. Iceland, oft derided here, has a business model that could yield it success if it finds the right sites to spearhead an Irish expansion.

Interesting times ahead.