herald

Sunday 17 December 2017

Dan White: Watch out as more of your favourite shops face complete collapse

Ulster Bank appointed a receiver to the Hughes & Hughes chain of bookstore on Friday -- the same day as an examiner was appointed to Bestseller Retail (Ireland), the parent company of the Vero Moda and Jack & Jones retail fashion chains.

Further piling on the agony was the news at the weekend from Australian retailer Harvey Norman that its 14 Irish stores had lost €11m during the six months to the end of December 2009.

However, the good news is that company is adamant that it is staying in Ireland. "We are committed to Ireland for the long term", declared the results announcement.



Desperate

While it won't come as any consolation to the 500 Hughes & Hughes and Bestseller employees whose jobs have been put at risk by last week's developments, they are unlikely to be the last group of retail staff whose employers go bust in 2010.

Things aren't bad for Ireland's retailers. They are absolutely desperate.

In the 12 months to the end of December the value of retail sales collapsed by 18pc. Even when new car sales, which have virtually completely dried up, are excluded, the value of retail sales still fell by almost 12pc in 2009.

Throw in the 7pc fall in the value of non-motor retail sales recorded in 2008 and the total fall in retail sales since the Celtic Tiger bubble burst over two years is almost a fifth. No business can lose a fifth of its sales without suffering severe trauma.

Retailing is no exception. Retail Ireland, the IBEC grouping which represents retailers, estimates that 25,000 retail workers, about a tenth of the total, lost their jobs in 2009. As last week's developments demonstrate, many more retail jobs will be lost in 2010.

The collapse in sales isn't the only issue confronting Irish retailers. As the Irish economy boomed, so did retailing.

With the property market already overheating, this fed through into an explosion in the rents being paid by retailers.

While in the good old days this was merely an extra cost that could be passed on to consumers flush with cash, it's a very different story now that shoppers are carefully scrutinising every penny they spend.

To make matters even worse, most retailers are tied into 35-year leases with upward-only rent reviews. This means that, when their rent comes up for review, usually every five years, the rent can only be increased, never cut.

With most retailers desperately needing lower rents in order to survive, upward-only rent reviews are utterly absurd.

Excessive rents were cited as a contributory factor in both of the latest retail collapses. Last year, amid much fanfare, Justice Minister Dermot Ahern banned upward-only rent reviews.

Unfortunately, the ban only applied to new leases and did nothing to alleviate the plight of retailers already tied into existing leases with upward-only rent reviews.

The apparent security conferred by upward-only rent reviews means that many retail landlords are still obstinately refusing to cut rents.

Only last week, the landlord of a Cork shopping centre sought a massive 425pc rent increase from one of his tenants.



LETHAL

Whatever the rights and wrongs of the situation, the reality is that most Irish retailers are now paying rents that can't possibly be supported by their current level of business.

This combination of excessive rents and collapsing sales is proving lethal for many retailers. The word on the High Street is that several other retailers are in a critical condition and could collapse at any time.

Meanwhile suppliers, fearful of not being paid for stock, are keeping many of their retailer customers, on a very tight leash.

Stand by for more retail collapses sooner rather than later.

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