Voices
Listening to Paschal Donohoe last week, I could not help but think of House of Ireland.
I met the finance minister in his office on Merrion Street shortly after the July Stimulus Plan, a €5.1 billion effort to keep the economy breathing, had been finalised.
Donohoe took me though the main elements of the plan – the general Vat reduction, the stay and spend initiative, and the extension of the Wage Subsidy Scheme – and outlined the philosophy and the rationale underpinning it.
The minister explained that many of the announcements would normally have been made in the Budget in October, but that he and his cabinet colleagues were conscious that this would too late for many businesses.
“I know today that there are thousands of employers who are hanging on and we are doing this today because October could be too late for them,” he told me.
For House of Ireland, the plan was already too late. At a series of meetings on Monday, Tom Murray, a partner with the accountancy firm Friel Stafford, was appointed liquidator to a number of group companies behind the tourist-focused giftware group.
Like many retailers, the family-owned business pulled down the shutters when the lockdown began in March. After taking professional advice, however, the directors were told they had little choice but to keep their four outlets shuttered for good – including a flagship store on Dublin’s Grafton Street.
The company cited the Covid-19 shutdown as one of the reasons behind its collapse. It also pointed to the future trading outlook upon a potential reopening. With the international tourism market in tatters, many of its potential customers had vanished, while it was also being impacted by changing consumer patterns such as increased online shopping.
The traditional retail sector was already in trouble prior to Covid-19. And the pandemic could turn a bad situation into a wider catastrophe.
This was not some fly by night retailer. It traced its roots back to the 1970s, and the family behind it had put vast sums of money into keeping it operational. Its shareholder Mark Galligan provided director’s loans totalling €1.3 million to help the business, while a family-owned holding company is owed a further €2,226,000. The company had total debts of €4.1 million, of which €3.5 million was due to its owners.
It was a sad day for the family, but also a chilling warning for the wider retail sector. Paschal Donohoe is right – thousands of other retailers are clinging on by their nails right now, hoping that customers will return.
Foreign retailers such as Debenhams and Monsoon were quick to shut their Irish operations when the lockdown started. But others have kept faith, hoping to weather the growing storm.
However, it is now becoming obvious that the pandemic is not a short-term thing. As the weeks have turned to months, there is a growing realisation that Covid-19 will change much going forward – from how we shop to how we work.
The traditional retail sector was already in trouble prior to Covid-19. And the pandemic could turn a bad situation into a wider catastrophe.
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Privately, policymakers and government aides are cautiously confident about the underlying resilience of the economy and about the chances of a sharp rebound. Relative to the level of unemployment, the income tax take has held up remarkably well – although this probably says something about the number of low paid workers who were outside of the income tax net in the first place.
Another interesting data point is in relation to debt warehousing, where the Revenue Commissioners has allowed businesses to defer tax payments. I spoke to Niall Cody, the chairman of the Revenue Commissioners earlier this month, and he pointed out that there was €1.5 billion of debt warehoused at the end of May, of which some €400 million has since been paid up. Cody, not unreasonably, also makes the point that although the scheme is low profile, its economic impact is significant.
However, while some data is positive, there is also an acceptance that the businesses in deepest trouble are those that are visible manifestations of economic activity such as pubs, shops and hotels. Behavioural economics is a contested discipline, but experts acknowledge that most people look at the economy through what they see in their own towns and villages, rather than multinational activity or the financial industry.
It has been a structural malfunction, and one has reshaped towns and cities all over the world. It was already a trend for the past decade, and it will be accelerated by the crisis.
And these are the companies facing the most trouble. The trick for the government will be trying to ensure consumer confidence in the face of boarded-up retail outlets. In provincial towns, this has become a common sight in recent years. Many old market towns have been decimated, and their once-grand thoroughfares now consist of little more than pubs that open up in the evenings, bookies, charity shops and discount stores.
The hospitality industry was fuming last week that the government did not reduce the Vat rate to 5 per cent, or even 9.5 per cent. But the government made the decision to enact a wider Vat reduction at the upper rate – something it believes might salvage more service and retail operations. It is a brave call, but the government is pointing to the continuation of wage supports and the tax breaks for staycations (although the rationale for the delayed introduction for the latter stimulus is quite unclear).
The issues affecting bricks and mortar retailers have been known for some time. Out of town shopping and online retail has eroded the traditional market dynamic that sustained the industry for decades. Labour costs have remained rigid as margins have declined.
It has been a structural malfunction, and one has reshaped towns and cities all over the world. It was already a trend for the past decade, and it will be accelerated by the crisis.
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Growing up in Enniscorthy in the 1990s, my parents made the brave move to buy a small shop in the heart of the town. It opened at seven in the morning, and closed at ten in the evening – and, bar some part-time help, was manned almost exclusively by my parents.
We lived behind and above the shop, which even opened for a few hours on Christmas Day. But even in the nineties, it was battling the prevailing trends.
The world was moving towards a franchise store model, with large operators supplying purchasing power and marketing glitz. Unfortunately, this shop was not big enough to merit affiliating with a symbol operator. So instead, each week, my father would make the journey to the local cash and carry, fill his car and replenish stock.
Some will cling on for more months or years. But the world is changing, and it remains unclear how they will survive amid this profound change.
Our small corner shop was independent and survived on the back of cheap family labour and a trojan work ethic by my parents.
They sold the shop after almost a decade. We packed our bags, relocated to a new house and moved on – happily away from the all-consuming nature of keeping a small shop alive in a changing world.
Most independent retailers have closed down or sold out over the past twenty things. It has been the way of things. But the new challenges posed by Covid-19 is impacting even larger, more established retailers.
Many retailers I have spoken to are expecting sales to fall by anything up to 30 per cent when they reopen fully. Some have migrated a portion of their business online, but, when it comes to online retailing, you are competing with the world and not just the shop around the corner.
Yes, there are opportunities for reconstituting what we expect from streets and town centres – but, in the current climate, that is probably a conversation for a different day.
When we spoke, Paschal Donohoe talked about the importance of October’s National Recovery Plan. If last week’s announcement was about sustaining business, the October version will be about reimagining the economy.
As Donohoe told me:
“I have always seen this in phases. My view always has been that we need to respond back at each stage of our public health crisis. But we needed to allow a number of weeks for the new government to fully understand all the different things that are in play.
“The next phase will be the National Recovery Plan. That will then outline what additional steps we are going to take across a two-year window to help our country deal with where we are with Covid and also the challenge of Brexit. I would see the National Recovery Plan differing from what we have done recently in that it cannot just be about spending money or tax decisions. It also has to be about the policy framework that our country is now going to move into.”
Whatever direction the economy moves into, it seems quite clear it will be one with less shops and fewer retail outlets. Some will cling on for more months or years. But the world is changing, and it remains unclear how they will survive amid this profound change.
