Going donuts: Are Irish consumers having a sugar rush of spending?
Queues for Krispy Kreme; Louis Vuitton sales up – are we throwing caution to the wind?
People queue at 6.30am for the opening of Krispy Kreme in Blanchardstown. Photograph: Leon Farrell/Photocall
Signs of madness in the crowd – when the twin forces of greed and folly fuse – can be used by economists to predict a crash.
More than 400 years ago, Dutch merchants fooled each other into thinking tulip bulbs were worth more than tall ships while, less than a century ago, shoeshine boys and millionaires lost their shirts in Wall Street’s bubble. In the late-1990s, dotcom became dotbomb and, in 2008, Ireland paid dearly for delusion as the myth that property investments were as safe as houses was exposed.
A sort of collective madness was evident in Ireland last week when Krispy Kreme opened in Blanchardstown and was swamped by queues of cars and people day and night. Even those queuing were unclear what they were doing.
Rose McGoldrick from Cork stood in line and confessed to confusion. “I don’t know why we are here, really,” she said, adding that it was “just a fad and people will get over it”.
While consumers standing in line to spend money may recall the boom, at least doughnuts are considerably cheaper than the designer bags, German cars and overpriced houses that caught the eye of Generation Bust.
Of course, consumers have also started spending on those things too. House prices are 20 per cent off what they were at the peak, but in Dublin they have climbed by 93 per cent since a 2012 low and by 75 per cent outside the capital.
Louis Vuitton sales in Ireland were up 35 per cent in 2016, according to its most recent figures, and almost 3,000 very high-end cars were sold last year, up 300 per cent in five years.
A reluctance to return to the profligate shopping habits of the past suggests the Irish consumer is still chastened by the crash and fearful of what might happen next, according to the chairman of Amárach Research Gerard O’Neill.
People don’t spend their time thinking about Brexit or Trump, but they do think about their disposable income
“As consumers we are still very cautious, and retail sales in some areas are still well below peak,” he told The Irish Times. “People are very price-sensitive compared to the boom.”
He suggested that while the big economic picture points to people being concerned about global uncertainties, what has happened in their pockets has had a bigger impact.
“I don’t think people spend their time thinking about Brexit or Trump, but they do think about their disposable income and how it hasn’t really increased in the last 10 years. But house prices, rent, heat and insurance and the rest have and that eats into disposable income. People are not seeing macro economic stories translating into their micro personal finances.”
That may explain consumer unease. The KBC Bank/ESRI consumer sentiment index published last week fell to just over 96 points – its lowest level since December 2016 and a six-point drop in just a month, the largest decline in four years.
While consumers remain positive . . . doubts appear to be accumulating with respect to the general economy
In July, 52 per cent of consumers said they expected the economy to strengthen over the next year. That has shifted in two months, and the latest index suggesting that only 36 per cent now anticipate stronger conditions in 12 months’ time.
For the first time in two years. more consumers felt their financial circumstances had worsened in the previous 12 months than felt they had improved, and fears about being left behind by the boom has seen more consumers marking down their expectations for their household finances and limiting their spending plans.
“While consumers remain positive . . . doubts appear to be accumulating with respect to the general economy,” said Philip Economides of the ESRI.
KBC’s chief economist Austin Hughes agreed and said the “clear message” of the recent results is that “the average consumer is more focused on the problems they now face than any improvement they may have seen”.
Mr O’Neill said an increase in sales volumes ignore the fact that the “value of sales have not rebounded to the same extent”.
“We will never go back to the boom in terms of spending,” he said.
“Both businesses and consumers have more money in banks than they have borrowed, and that is unprecedented, and I think that is because people keep telling themselves they won’t get fooled again.”
Except, maybe, when it comes to doughnuts.