Cost of goods now at levels not seen in almost a decade

The cost of goods spread across dozens of categories are in “freefall”, and have returned to levels not seen in almost a decade, a leading business lobby group has claimed.

The group is warning that while consumers stand to benefit from falling prices, it is putting significant pressure on retailers.

The value of retail sales grew by just over 3 per cent in the first three months of the year compared with the same period last year, but falling prices and weakening consumer and retailer confidence is a growing concern, according to Retail Ireland.

The latest figures from the Ibec group representing the retail sector show significant deflation and heavy discounting. In the first part of 2017, 25 of the 32 major retail categories tracked by the Central Statistics Office (CSO) saw price deflation in March when compared to the same month in 2016.

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The shift has taken consumer prices back to 2009 levels, Retail Ireland said.

Real strain

"Sales data for the first quarter appear broadly positive on the surface, however some of the other key sector metrics are a cause for concern," said its director Thomas Burke. "Consumer prices remain in free fall, and profitability in the sector is now coming under real strain as Irish retailers cut prices in order to remain competitive, both with each other and with foreign-based online retailers."

He said consumers continued to be “strongly motivated by price and value”, and “downward pressure on prices is particularly worrying given recent cost increases for retailers in rents, rates and insurance.”

Mr Burke said increases of this nature were likely to put “further pressure on the wafer thin operating margins in the sector”.

“With consumer confidence remaining shaky, retailers are bracing themselves for difficult trading conditions over the coming months,” he said.

Trends

Among the trends set out in the latest Retail Ireland Monitor include a growing gap between supermarket and convenience stores’ performance and growth in consumer expenditure. It describes deflation as an ongoing problem, with the latest figures showing food and non-alcoholic beverage deflation running at 2.6 per cent in March, while alcohol prices declined 5.2 per cent.

The first three months of the year were positive for department stores, with online being the main driver of growth. The key categories driving growth were electrical, furniture, homewares, women’s shoes and beauty.

A late Easter and Mother’s Day, and the associated school holiday period, meant that the start to 2017 was slower than anticipated for the pharmacy sector.