The €1 billion market: retailers who serve tourists face double trouble in a pandemic

On March 16th, the Kilkenny Group should have been coping with one of its busiest periods of the year. The St Patrick's festival usually draws 500,000 visitors to Dublin, including 100,000 from abroad. Tourists would have thronged Kilkenny's flagship store in Dublin's Nassau Street buying the sort of high-end Irish design items for which it is well known.

But instead of cashing in on the day, Kilkenny was cashing up. Its 17 stores and five restaurants shut due to the pandemic, as the wider economy went into hibernation. Tourists stayed away and, with quarantining now in place for foreign visitors, they are unlikely to return in 2020. It is a heavy blow for the luxury retailer owned by Marian O’Gorman and her family.

"The lack of tourists has taken 30 per cent straight out of the business," says O'Gorman, who built up Kilkenny over two decades after spinning it off from the Blarney Woollen Mills retail group founded by her father, Christy Kelleher, in the 1970s.

“That’s a big piece of the business to lose, and that’s before the Irish recession hits the rest of it. We’re not predicting any foreign tourists by year end. If we get a few per cent, we’ll be lucky.”

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O’Gorman’s business has weathered storms before and she is determined to steer Kilkenny through the gales of coronavirus. Its stores have reopened, with the exception of one outlet in Greystones.

Kilkenny has made a handful of its 350 staff redundant, and focused its attention on the domestic market through homewares and it is also boosting its e-commerce offering.

"If the tourists can't come to us, then we're going to come to the tourists," says Kilkenny's director of marketing, Evelyn Moynihan. Online sales have more than quadrupled since the start of lockdown and the group plans a relaunch of its Kilkennyshop. com site in two weeks. It is also the driving force behind the #ChampionGreen campaign to promote the sale of indigenous goods.

As she sets out to navigate the economy's second precipitous plunge since the peak of the Celtic Tiger a dozen years ago, O'Gorman remains defiant: "Covid-19 has had a huge effect on our business. But we're going to adapt. This is our way of being agile and of keeping people in jobs."

Double trouble

The two sectors of the economy hit hardest by the pandemic are tourism and retail, so retailers that specifically target tourists face double trouble. Lobby group Retail Excellence says its members in this segment have witnessed sales declines of up to 70 per cent due to coronavirus.

“Tourism retailers have been one of the hardest hit sectors among our membership,” said Keelan Bourke of Retail Excellence. Proving the point, Grafton Street tourist retailer, House of Ireland, an erstwhile rival of Kilkenny Group, called a meeting of its creditors on Thursday to appoint a liquidator.

Figures from the State tourism authority, Fáilte Ireland, show that 13 per cent of expenditure by foreign visitors to Ireland goes on retail. Last year, inbound tourists spent a total of about €7.5 billion here, suggesting they dropped close to €1 billion in shops. The bulk of that is gone for 2020.

Much of tourists’ retail spending goes on high-end goods in two distinct segments: US and European visitors gobble up Irish craft goods such as those sold by Kilkenny while Asian tourists, in particular, spend heavily on the global luxury designer brands found in venues such as Brown Thomas in Dublin and the Kildare Village outlets centre.

Domestic Irish tourists, who are the only game in town for the tourism market currently, spend far less per head than foreign visitors from the US, Europe, and further afield. It is expected that Irish “staycationers” will pick up only a fraction of the near €1 billion slack left by absent visitors this year.

"No doubt about it – international visitors would easily drop €200 on something like a handmade Irish blanket that would make the rest of us go 'Oh my God!'" says Jenny De Saulles, director of sector development at Fáilte Ireland. "The likes of Kilkenny Group, Brown Thomas and Kildare Village are going to really hurt."

Few Irish shopping complexes look as exposed to the twin tourism-retail collapse as Kildare Village, which declined to comment for this article. It is the bastion of bling in Ireland, with its 100 outlets including standalone stores for some of the biggest names in global fashion such as Prada, Armani, Karl Lagerfeld and Michael Kors.

The complex’s international owner, Value Retail, spent €50 million on an expansion at Kildare Village five years ago. When the pandemic hit, it was in the midst of a planning battle over part of a further €70 million extension that was due to add another 31 stores next year.

Wealthy brand-conscious tourists from outside Europe make up a huge proportion of its visitors. A clue lies in the fact that Kildare Village’s website comes in four languages apart from English. And none of them is German, French or Italian. Rather, they are Mandarin, Korean, Russian and Arabic.

In particular, it is popular with the Chinese. Most of the Republic’s 100,000 visitors annually from that communist state are, at some stage on their visit, bussed to this most consumerist of Irish tourism attractions.

Chinese shoppers are responsible for about two-thirds of tax-free purchases at Kildare Village – the Irish tax-free shopping regime allows them to buy many more luxury items without paying VAT compared to competing regimes such as the UK or France.

In recent years, Kildare Village has worked closely on its offering to the Chinese with tourism authorities such as Tourism Ireland, which markets the island globally and had been targeting more Chinese visitors ahead of the Covid shutdown, and Fáilte Ireland, which runs a Get China Ready accreditation programme for tourism businesses and tourism-focused retail companies, such as Kildare Village.

“Chinese tourists love to buy global brands for themselves and, when they are abroad, they also buy expensive gifts in a hierarchy,” says De Saulles. “For family and close friends, they buy really expensive, high-end presents, such as top shelf whiskies or design items. Then they will buy a wider range of less-expensive items for their neighbours and maybe their friends at work.”

Prior to the pandemic, Irish tourism authorities were focused not just on attracting China’s burgeoning middle classes: Fáilte Ireland also developed a programme targeting high net worth tourists, or the segment known as ultralux. Some Chinese would be among them, although many would also come from the US and Europe. De Saulles says the average ultralux couple spends at least €20,000 while here.

“These are the sort of people who might fly in to Farranfore on their private jet. Maybe they’ll take a helicopter then to play golf, or a chauffeur-driven car, stay five star, have a private dining experience. They might want to do one of the traditional tourist experiences such as the Guinness Storehouse, but at night when it is closed to everyone else – they want exclusivity.

“And if they are buying gifts from retailers, they will buy the most expensive ones available – they might spend thousands on a rare bottle of whiskey, for example.”

De Saulles feels this segment of the market, while tiny, will bounce back first as the ultra-rich are almost unaffected by the pandemic. That would be a boon to some top-end retailers. However, she adds, ultralux travel will be affected if any quarantining measures remain in place long term: “We’re now looking to 2021.”

Crafts

The retail segment perhaps most affected by the post-virus decline in tourism is Irish crafts and gifts. The damage isn’t restricted to larger retailers such as the Kilkenny Group. More than 200 small craft and design businesses across Ireland have their own on-site retail operations, which tend to be propped up by foreign visitors from May to September.

The Design & Crafts Council Ireland, based in the city of Kilkenny, is a national promotional agency funded by the State. Its chief executive, Rosemary Steen, says the sector is worth €400 million annually.

Of this, about 70 per cent, or €280 million, is spent by tourists. And 80 per cent, or €224 million, of these Irish crafts and design purchases are exported by overseas tourists.

A large chunk of sales in this sector will be lost this year and, again, domestic tourists are not expected to take up all of that slack.

"Why would domestic tourists be spending heavily on Irish fine bone china or handmade tablecloths?" says Gerardo Larios Rizo, the head of hospitality at Bank of Ireland's business lending division. "It's not like you are allowed have a dinner party anyway."

However, Steen insists that research in June commissioned by the council and carried out by Amárach Consulting, shows that calls by the Design & Crafts Council Ireland and others to support local Irish craft businesses were having an effect. The council has also been holding webinars to help Irish craftmakers sell more wares using e-commerce.

“After the virus, there will be a big shift to shopping for crafts online anyway. But our research shows an 11 point increase in Irish consumer intent to shop for crafts online, across all demographics.”

Many small design retailers are in regional locations. Some are dotted along tourist hotspots such as the Wild Atlantic Way of the west and southwest coasts.

Others, such as cut glass studio Criostal na Rinne in the Waterford Gaeltacht, are in the bailiwick of Ireland's Ancient East. Former Waterford Crystal glassmaker, Eamonn Terry, runs the studio, which operates glass cutting demonstrations and tours. He also retails directly to tourists, shipping the delicate items abroad.

“Normally you’d have the US market at this time of year but, sadly, we won’t in 2020,” he says. “But still we’re back now and open for business selling our glass here and on Criostal.com. We have a lot of making up to do. It will be a funny year. We just don’t know how the season will pan out.”

Regional

Larios Rizo says that, while many craft retailers are in regional locations, they are normally disadvantaged because many foreign tourists would choose to make purchases of Irish goods in outlets in Dublin. This time around, however, their location could help to cushion the virus blow for some regional retailers.

“Those items can be bulky and many foreign tourists usually prefer to wait until they get back to shops in the city, so they can buy them right before they go for the plane home. But the appeal of large urban areas will drop now due to the virus.

“There’s also a double effect on the city, because domestic tourists will all be leaving Dublin to go to the countryside. Tourist-focused retailers in regional locations will do better because occupancy will be highest in those areas.”

Tourist-focused craft retailers in the capital are not letting the grass grow under their feet, however. Irish Linen House is a family-run studio and retail business in a high footfall area for tourists close to the Jameson Distillery in Smithfield. Like Kilkenny Group, it was forced to shut its doors just before St Patrick’s Day, when it normally would have sold plenty of its products, such as handmade tablecloths, to visitors in town for the festivities.

Its online business was only newly developed – most retail sales were to groups in-store – and Irish Linen House’s prospects during lockdown were looking difficult. But crises can also open doors.

"A pharmacist friend of mine was complaining that she couldn't source face masks anywhere and she asked us if we'd make a batch," says Marie-Claire Whelan, who works in the business with her parents, Greg and Mary Whelan.

"Linen is really good for face masks. It's easily breathable and anti-bacterial. So we made a batch, and they all sold out. So we made more… and more. We got so many orders, we outsourced production to a factory in Dublin. We started selling them online and then we got stocked in Brown Thomas and Arnotts.

“It has kept us afloat. We love what we do with tableware and we hope to resume selling to tourists as soon as possible. But making the face masks has really helped us to raise our profile in the Irish market. It has shifted our thinking a little bit.

“You have to make the best of things and maybe this has opened up an opportunity for us with people from home, as well as with tourists”.

In a virus pandemic, retailers targeting tourists must be nimble.