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Irish consumer market in very weak state in Q2 of 2009

Date: 30 Jul 2009

Dublin, Thurs, 30th July: UCD Michael Smurfit Graduate Business School and the Marketing Institute of Ireland (MII) launched the Consumer Market Monitor results today which show the Irish consumer market continued to be in a very weak state in the 2nd quarter of 2009. The monitor shows there has been a steady although modest lift in consumer confidence from April to June, with June showing the highest level in more than twelve months. Although the lift is encouraging, it has yet to feed through into sales as consumer spending in all retail categories continues to decline, with cars and property hit hardest.

The monitor, which tracks key indicators of confidence and activity in the Irish consumer market on a quarterly basis, shows consumers have reacted cautiously to the ongoing economic problems by increasing savings and curtailing expenditure. It reveals consumer spending has fallen by 14% from the final quarter of 2008 to the first quarter of 2009. Meanwhile, personal savings have increased from 3% of disposable income in 2007 to 10% in 2009, which appears to be a precautionary response to the rapidly deteriorating prospects for employment and incomes.

According to the monitor, the retail sales index has reported record losses across all sectors, further compounded by the collapse of the motor trade and rise in cross border shopping. Retail sales value, excluding the motor trade, decreased by 43.9% for the year ending May 2009. One of the hardest hit sectors in value terms has been the motor trade down 42.5% for the year to the end of May; household equipment down 27%, clothing and footwear down 26.2%, department stores down 17.6%, fuel down 21.5%, and newspapers/stationary down 14.3%. The report shows bar sales have held up better than might be expected with a decline of 11.4% in volume and 9.8% in value.

Personal sector credit declined for the fourth consecutive quarter in Q1 2009, with the pace of decline becoming more rapid. Although property lending accounted for 61% of all personal sector credit, the number of loans paid out for home purchases declined by 39% in the first quarter of 2009 compared to the previous quarter. The decline was even greater when compared to the same period in the previous year, at 52%. Interestingly, the results show the annual rate of increase in mortgage lending declined to 2.6% in May, the lowest level on record.

Commenting on the monitor, Professor Mary Lambkin, UCD Smurfit School said: “We are delighted to work with the MII to bring the Irish business community a resource that acts as a barometer of consumer sentiment. The Consumer Monitor is a user-friendly report that aims to bring key data together and present it in a way that is easy for the marketing practitioners and business planners to interpret and use for market analysis and sales planning.”

Tom Trainor, Chief Executive of the Marketing Institute of Ireland said: “This resource will be used as a tool to analyse the direction of consumer spending and the health of the Irish economy. We plan to update and issue the report every quarter to highlight current trends in consumer spending, saving, and borrowing of various types.”

Credit card debt decreased slightly, by 0.8% between April and May 2009. This followed a small increase of 1.8% between March and April although the latter may have been caused by an increase in interest charges rather than any change in actual spending. However, payments on credit cards have exceeded indebtedness in every month of 2009 to date with a net reduction in indebtedness of €23 million in May.

Not surprisingly, perhaps, food has held up best, down just 4.6% in volume and 6.5% in value. Some of this decline may be attributed to falling prices. A recent report has indicated that there has been nearly a 1% monthly drop in food prices, which has resulted in a 3.3% annual food deflation. This trend is compounded by the rise in cross border trading, which Retail Ireland estimate takes 2-3% of total consumer spending north of the border.

Consumer confidence has improved slightly in recent months and hopefully this presages a gradual resumption in sales activity although the forecast is for a reduction of about 5% overall for 2009 with a further decline of 3.4% in 2010.

The Consumer Market Monitor uses quarterly data collected from sources including the Central Statistics Office (CSO), the Central Bank, the European Commission, and various other secondary sources. To download the full report can be downloaded online at www.mii.ie/cmm.