We are living through the strangest of times and we have very little visibility on when we will fully re-emerge and what we will eventually re-emerge into. It does appear certain that the longer-term consequences of Covid-19 from both a social and economic perspective will be profound.
The way we holiday, the way we socialise, the way we interact with people, and the way in which we consume goods and services will be very different, at least until Covid-19 becomes just a nasty memory. That is still some distance away.
Undoubtedly, there will be a long-lasting economic and fiscal legacy. Large swathes of the economy are shut down, and most of the rest is operating at very low levels of capacity. There is a hierarchy of pain on a sectoral basis.
Non-retail grocery, restaurants, hotels, pubs, motor dealerships, hairdressers and beauty businesses, gyms and many other leisure activities have the unenviable distinction of being top of this particular hierarchy of pain. Construction activities are probably in the next tier, and eventually we get down to the agri-food sector and grocery retailers, who are much less affected.
The retail sales data for March tell the story in a more eloquent way. In the year to March, the value of overall retail sales declined by 12.4 per cent. Within this overall decline, department store sales fell by 29.4 per cent; bar sales by 54.2 per cent; clothing, footwear and textiles fell by 51.9 per cent; furniture and lighting by 17.9 per cent; books, newspapers and stationery fell 28.9 per cent; while the motor trade was down by 28 per cent.
In marked contrast, sales of food, beverage and tobacco increased by 17.3 per cent, and pharmaceutical, medical and cosmetic sales increased by 11.2 per cent.
The difficult trading conditions that are likely to continue for possibly the next 24 months could make business survival all but impossible for many
These declines are dramatic by any standards and it is worth remembering that they relate to a month during which most businesses were functioning for the first couple of weeks. The numbers for April will be horrendous.
Consumer nervousness
Government has now laid out a timeline for the re-opening of many businesses, although there is still considerable doubt in some areas. The fear is that many of the businesses may not be able to re-open as cashflow has ceased and expenses are piling up.
Others may struggle to survive once they do open, because they will enter an environment where consumer nervousness, high unemployment, lower incomes, a non-existent international visitor market, social-distancing requirements and other necessary health protocols will act as considerable constraints on business volumes and add to operating costs.
Having used up much capital during the shutdown, the difficult trading conditions that are likely to continue for possibly the next 24 months could make business survival all but impossible for many.
Restaurants, pubs and non-grocery retailers are probably the three categories of business under most threat, although the vulnerabilities are not exclusive to them.
For the retail sector, the challenges are immense. While there may be an initial surge in so-called revenge shopping, as happened in Asia, that is unlikely to be sustained for very long.
Retailing is a very important component of the economy. It satisfies consumer wants and provides direct employment to about 288,000 people in the cities, towns and villages around the country.
The danger at the end of this crisis is that there will be further significant damage done to the already-stretched retail offering around the country
Retail Excellence Ireland is fearful that if significant support is not given to the sector, many retailers will be closed permanently, and more than 100,000 jobs could be at risk.
This may sound dramatic, but if one considers the challenges that many retailers will face over the next couple of years, and the fact that many previously reluctant consumers have been forced to migrate to online shopping over the past couple of months and may be slow to revert to bricks and mortar, the risks are obvious.
Rural impact
Such a loss of retail businesses and jobs would be detrimental to villages, towns and cities around the country who have struggled to maintain economic vibrancy and life in recent years in the face of many changes to the retailing model.
The danger at the end of this crisis is that there will be further significant damage done to the already-stretched retail offering around the country. This cannot be allowed happen as the social and economic consequences would be detrimental to the regional social and economic development agenda. I think it would be dreadful to see further damage done to the already struggling streets of our villages, towns and cities.
It is essential that the rescue and rebuilding of the retail sector has to be central to the economic recovery plan of the incoming government.
Retail Excellence Ireland is recommending a package of measures designed to save the sector. These include a 12-month holiday from commercial rates; a scheme to reduce the amount of rent payable during the crisis; easy and cheap access to working capital through the banking system; and a bricks and mortar gift card designed to boost consumer spending in physical retailers.
Furthermore, for those in retail who do lose their jobs permanently, a jobs-bridge-type scheme should be specially designed. Indeed, for all workers who are without jobs at the end of this crisis, it is imperative that some type of scheme is developed in order to prevent a long-term unemployment crisis from developing. Socially and economically, that would be disastrous.
Economic growth and recovery must be fully supported and a higher level of Government debt must be accepted as a fact of life in the near-term
All of these measures suggested for the retail sector would cost a lot of money, but there is little choice for this sector and indeed many other sectors. This week Ibec laid out the analysis in a stark manner, but it is hard to disagree.
Sustainable businesses will be needed to re-employ workers and generate economic recovery. Over the next couple of years, Ireland will inevitably run significantly higher deficits and grow its outstanding debt. That is just a fact of life, but it is essential for the social, economic and financial wellbeing of the overall economy, that this crisis is not followed by a period of fiscal austerity like 2007/08. That would risk turning a recession into a depression.
Economic growth and recovery must be fully supported and a higher level of Government debt must be accepted as a fact of life in the near-term. The promotion of stronger economic growth is ultimately the best way to reduce the burden of debt. These unprecedented times warrant unprecedented solutions. Our policy makers need to be inventive and brave.
