Retail sales fall 3.7% in January

The volume of retail sales fell by 3.7 per cent in January, suggesting that consumers felt the pinch of VAT increases introduced in December’s budget.

Figures released this morning by the Central Statistics Office show that the volume of retail sales was down 3.7 per cent month on month, while there was an annual decrease of 0.8 per cent.

When motor sales are stripped out, the retail sales decreased by 1.6 per cent, compared to December 2011, with an annual decrease of 2.7 per cent.

While sales in the motor trade saw the biggest drop – a fall of 21.3 per cent – department stores saw an 18.4 per cent decrease in the volume of goods sold on a monthly basis, suggesting that the annual January sales failed to lift consumer sentiment.

The volume of electrical good sold was down 12 per cent, while clothing, footwear and textiles fell by 5.7 per cent. Some sectors experienced volume growth, with pharmaceutical, medical and cosmetic products sold in specialist stores up 4.1 per cent and food, beverages and tobacco in specialised stores up 2 per cent.

The standard rate of VAT increased from 21 per cent to 23 per cent on January 1st, following changes announced in December's budget. As well as applying to a range of consumer goods, such as adult clothing and footwear, jewellery, cosmetics and households goods and furnishings, it also affects fees and services such as mobile phone and legal and accountancy services.

The value of retail sales decreased by 3.7 per cent in January, compared with December, while there was an annual change of -0.3 per cent.

Retail Excellence Ireland described the fall in retail sales returns as “very disappointing but not unexpected”. Its David Fitzsimons, said that Irish consumer confidence remained at a record low.

“Fears over job security and continued austerity are weighing heavy on consumers minds. Retail Excellence Ireland members are reporting that the 2 per cent rise in the higher rate of VAT is depressing spending. If this trend continues, it looks probable that the Government may struggle to raise an additional €670 million from the 2 per cent increase in VAT rates,” he said.

Meanwhile the ISME, the Irish Small & Medium Enterprises Association, said the Government must take the crisis in the retail trade more seriously given that it employs 262,000, almost 15 per cent of all jobs in the Economy and accounts for over 10 per cent of GDP.

“Despite this importance, the Government's Action Plan for Jobs 'skated' over the sector with barely a mention and the 'actions' that were announced were so 'milk and watery' that they will have little or no effect on the sector. Where is the action on upward only rents, where is the action on rates, where is the Retail strategy group?”

“High costs, inconsistent policies and VAT increases have led to consumer pessimism and reduced spending of 3.7 per cent in January, leading to a decline of well over 30 per cent in retail sales since 2008. This has led to 50,000 jobs lost in the sector and still Government pussyfoots around with a jobs plan which is 'all hat and no cattle," Mr Fielding said.

Retail Ireland, the IBEC group that represents the retail sector, said the figures highlighted a “pretty dismal” start to the year for Irish retailers and suggested many consumers had made purchases in November and December to avoid the January VAT hike.

Director Stephen Lynam said that, despite relatively robust sales in November and December, consumers appear to have shunned the January sales.

"Department stores were particularly badly affected, with sales falling by 18.4 per cent in the month; sales of electrical goods were down 12 per cent, while sales of clothing and footwear were down 5.7 per cent. Overall, retail sales are down by around 30 per cent compared with the boom era. Consumer sentiment is weak and the outlook remains uncertain.”

“The high cost of rents, rates, tax and labour are causing retailers real difficulties and depressing consumer demand. Action is needed on all these fronts, including a review of VAT returns at the end of next month. If the Government's target is not met, as now seems likely, the 2 per cent increase should be reversed," Mr Lynam said.