How do you solve a problem like Ireland?

Another week passes, another shop shuts its doors for good in the Emerald Isle. Ireland, with an economy on its knees, has the unenviable position of being arguably the only international market that offers UK retailers virtually no growth opportunity whatsoever.

The problem is that most UK retailers are already there. Figures at the end of April revealed that March was the 37th consecutive month of retail sales decline in Ireland. In March, Carpetright said it was to close seven of its 25 Republic of Ireland stores, while Clinton Cards announced it was closing its 14-store Birthdays Irish chain.

Recovery position

As Clinton Cards gives up all hope of survival across the Irish Sea and Carpetright says it sees “no sign of recovery”, how can retailers deal with their Irish businesses? “The rules of the game that might apply on Oxford Street do not apply on Grafton Street,” says Simon Burke, non-executive chairman of Irish grocer Superquinn. “In Ireland it’s a crisis, not a recession, and everything’s fair game. Retailers need to look at what they can do to make their businesses viable and go ahead and do it.”

The obvious step is to manage costs. Every retailer will be doing this already throughout their business. Importantly, though, in Ireland there is scope to push it further. As part of the review it conducted into its Irish business, Carpetright group finance director Neil Page says it has been able to renegotiate staff contracts. Ireland has a strong union foothold, but as Burke says: “You’ll find that employees see sense. They might even take pay cuts because jobs are hard to find. It’s all about how you communicate with them.”

It’s a mistake to think that retailers can apply their domestic strategies and products to their Irish stores just because the country is geographically close and its people speak the same language. After conducting a review of Carpetright’s Irish business, Page says it has adjusted the business accordingly. “Our European managing director now has responsibility for Ireland,” he says. “The proposition there is more akin to our European offer than to the UK.”

Know your shopper

Retailers must not be afraid to change the focus of their business now that the Irish economy is foundering. Research from consultancy Mintel (see box, left) suggests that value for money is a priority for 70% of Republic of Ireland shoppers. Burke recalls that at the beginning of 2008 Superquinn was producing luxury brochures promoting fine wines and cheeses. Six months later it was churning out leaflets full of offers. As a grocer with a reputation for premium produce, Burke says it didn’t feel comfortable about immediately promoting value, but realised it had little choice.

Paying close attention to Irish shoppers’ behaviour will also lift retailers’ chances of gaining market share. Dixons Ireland managing director Declan Ronayne says its shoppers are clamouring for good value yet premium products because they are durable and will last. “People are being careful with money, but they’re spending it wisely,” says Ronayne. “We realised there were more opportunities in domestic appliance categories so we offered heavy discounts but went hard on the premium lines, and we’ve gained market share.”

Retailers should also consider pricing. Despite the fact many Irish people have had to take pay cuts and the country’s unemployment rate continues to rise, Ireland has the second highest cost of living in Europe. The highest is Monaco. To put that into context, a standard bottle of Jacob’s Creek in some convenience stores can cost as much as E20 (£18).

When Ireland joined the euro in 1998, it not only gave some retailers an opportunity to nudge prices up, it also highlighted just how expensive it was compared with other EU countries. Even before the economy crashed, the Irish were far more price sensitive than even the canniest of UK shoppers, and there is much retailers can do around pricing, promotions and markdowns to boost footfall, sales and market share.

Martin Kelleher, managing director at Musgrave-owned food retailers SuperValu and Centra ROI, says that SuperValu’s price reductions and offers are “set to top E260m (£234m) in 2011”. He says it has delivered cost savings for customers via a combination of increased promotions, meal deals and own-brand. “Ultimately we are looking to drive our sales volume,” he says. “Our performance last year has proved that we are adept at changing to suit consumer needs. The key is to be able to adapt quickly and easily.”

Dan Murphy, director at consultancy AlixPartners, says retailers need to “start being more realistic about their pricing structures and a lot cleverer about price elasticity” within their Irish stores.

Gus Ormond, director at strategy consultancy Simon Kucher & Partners, agrees: “Being on Sale the whole time has serious consequences for the brand. Getting the everyday price right is more important.” Under normal circumstances, slashing prices during a downturn is an easy way to devalue a brand, but because Ireland’s cost of living is so out of kilter with the rest of Europe there are opportunities to assess whether full-price merchandise really is pitched correctly for Irish shoppers. However, warns Ormond, you need to be “100% sure that it’s the right thing to do”. He advises looking at historical changes in price and the impact they had, scrutinising competition and carrying out in-depth, direct consumer research before making
any decisions.

Online bonanza

As Irish shoppers’ price sensitivity has heightened during the crash, more people have realised the benefits of online shopping. The country has been slow on the uptake – the widespread presence of broadband is only relatively recent (see table below). But online in Ireland presents an opportunity as yet unfulfilled by many UK retailers.

Research by Mintel in May last year showed that many UK retailers do not yet accept online orders from the Republic of Ireland, and yet, on average, an overseas online retailer was the only option for Republic of Ireland shoppers in 71% of product searches. Growth projections by research company Forrester suggest that the growth of the Republic of Ireland’s online retail sales will be 5 percentage points greater than the UK by 2015.

Dixons-owned technology etailer Pixmania launched in the Republic of Ireland in 2002. Executive director Ulric Jerome says: “That’s why we jumped on the opportunity nine years ago. The truth is that there are very few local online players there.” He believes online shopping is just what many Irish shoppers are looking for. “First of all, online prices are usually lower than in traditional shops and shoppers have access to far more choice. And, because you’re buying from the comfort of your home, people save on fuel at a time when it’s at an all-time high.”

Jerome points out that 66% of Irish households have access to the internet, yet only 37% buy online. In the UK, 77% of households have internet access and 66% are online buyers. There are opportunities abound in the Irish online retail market. However, as Ronayne points out, the Republic is home to only about 4 million people, compared with the UK’s 61 million.

Click here for the Forrester research Online Retail Sales forecast for western europe

“It’s definitely an opportunity, but it requires an expensive investment in infrastructure,” he says. Nevertheless, Dixons is launching transactional sites for its Currys and PC World brands in the next week. It currently only has a catalogue website. Ronayne says this will not only strengthen its store proposition but reach more people who currently live more than two hours from one of its stores.

Close scrutiny of the store portfolio is also crucial for retailers in Ireland. Should they follow Carpetright’s lead and consolidate? In many cases it would make sense. Given that many rents in Ireland are still based on astronomical commercial property valuations from as long ago as five years ago, store operating costs are high. While retailers are doing all they can to negotiate with landlords – and some have had some success against upward-only rent reviews – it may not be enough.

Many landlords still have to service the high levels of debt they took out for major property development schemes in the glory days. But, as Murphy points out, many retailers have the problem of onerous break clauses – the cost of getting out of a store can also mean it is worthwhile staying with one that is losing money.

Should retailers follow Clinton Cards’ lead and pull out altogether? As Burke says: “There’s no point pumping money into something that’s not viable.” Ultimately, there are options for retailers in Ireland – be they drastic, proactive, or both.

Amid the current flurry of excitement about growth opportunities in countless other international markets, retailers with a presence in the Republic of Ireland can’t sweep their problems under the carpet. It may be among the least attractive overseas markets at present but is the closest to home and overlooking it could mean retailers miss valuable opportunities to both save money and even, surprising as it sounds, make money too.