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VOL
V
O 1. ISSUE 1.
RETAIL
CONVENIENCE STORES
IRISH RETAILING: THE CHALLENGES
AND THE OPPORTUNITIES
PLUS Getting Ready for SEPA:
What Your Business Needs to Know.
in association with
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Supporting
Irish Business
Welcome to the first in a series of AIB sectoral
reports, starting with the Irish retail convenience
sector. Over the coming months, these reports
will examine and analyse the key issues affecting
particular sectors within the Irish economy, offer
expert guidance and opinion from key stakeholders
and provide some helpful insights into how AIB is
working to support the growth of these sectors.
An important dimension of these reports will be the
specially commissioned in-depth research into each
of the sectors. This valuable research, which will be
carried out by Amárach Research, will shine a light
KEN BURKE, HEAD OF AIB BUSINESS BANKING
on the burning issues within each sector and the
dynamics underpinning them. They will also include
Ireland are inextricably linked to the fortunes
the views of leading industry experts.
of the wider economy. For AIB, our success as a
bank in the future, is very much tied to the success
The insights gained from the research will also allow
of our customers.
AIB to develop flexible and innovative financial
solutions for its customers. AIB is wholeheartedly
The first report focuses on the Irish retail
committed to the Irish SME sector and it understands
convenience sector and the hugely important role
the important role small and medium sized
it plays in every town and village throughout the
businesses play in the social and economic fabric
country. AIB has partnered with both Amárach
of every city, town and village in Ireland. Indeed,
Research and the representative organisation for
AIB has been to the fore in developing meaningful
Irish retailers, RGDATA, in compiling the research.
financial solutions for a wide range of large and small
We have also drawn upon the expertise of a number
customers operating in a variety of different sectors
of leading retail experts, who have provided their
over the past few years.
own thoughts and insights into the challenges and
opportunities the sector faces.
The bank also understands that its customers
ultimately want simple, effective and innovative
There are clear messages in this report for
technology-driven solutions that ultimately make it
retailers, the Government and the wider banking
easier and more efficient for them to conduct their
industry in Ireland. For its part, AIB is committed to
day-to-day banking affairs. These include point-of-
helping address the key findings, strengthening its
sale payment solutions, online banking, contactless
relationships with retail customers and working with
payments and e-commerce solutions.
customers to ensure that the Irish economy returns
to growth again.
In a lot of the national debate about the Irish banking
industry over the past few years, one key fact has
I hope that you find the report interesting and useful.
often been overlooked – Irish banks need to lend
to the SME sector if they are to survive and thrive.
Indeed, the fortunes of the banking system in
KEN BURKE
HEAD OF AIB BUSINESS BANKING
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A I B / A M Á R A C H R E S E A RC H S U RV E Y
THE VIEW FROM THE
SHOP FLOOR
IT’S BEEN A DIFFICULT FEW YEARS FOR THE INDEPENDENT
RETAIL SECTOR IN IRELAND. HOWEVER, NEW RESEARCH
CARRIED OUT BY AMÁRACH RESEARCH, ON BEHALF OF AIB,
IN ASSOCIATION WITH RGDATA, POINTS TO A NUMBER
OF POSITIVE TRENDS EMERGING THAT WILL ULTIMATELY
BENEFIT THE SECTOR
Irish retailers have been in the frontline of
2013 and a total of 167 retailers around the
Ireland’s economic woes over the past few
country participated in the confidential survey.
years. With retail sales down by 17% since
The findings of the research point to a new
2007, it is not surprising that many retailers
dynamic within the independent retail sector
are still finding the going tough.
with almost half (49%) of those surveyed
expecting a recovery for their business within
New research carried out by Amárach
the next 1-3 years while the balance, 51%,
Research, on behalf of AIB, sheds some
expected that it would be at least five years
light on the thoughts of Irish retailers and
before a recovery would be felt.
the trends that have emerged in the Irish
retail landscape. As part of the research,
When it came to the wider economy, however,
AIB worked with the retailers’ representative
less than 5% of those surveyed expected an
organisation RGDATA to conduct an online
improvement in Ireland’s economic fortunes
survey of independent retailers in February
within the next year, while 65% of those >>
BIG STORES AND BIG STAFF
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surveyed reckoned that it would take at least
ft, while another 29% are in excess of
share of an economic pie that is not growing.
five years.
2,000 sq ft, a good reflection of the scale
Not surprisingly, the research shows that 57%
of many independent retail operations
experienced a decrease in turnover between
around the country.
2011 and 2012, while just 16% reported an
The research highlights the importance of the
independent retail sector to local economies
increase. The balance, 26%, reported turnover
around the country and the sector is often the
levels that remained unchanged between 2011
largest employer in many local communities.
and 2012.
Indeed, half of those surveyed (51%) employ
20 or more staff while 20% employ more than
A SMALLER PIE
50 staff. Only 28% of those surveyed employ
In the absence of an increasing top line, it
is no surprise to see increased pressure on
Although the worst may be over for Ireland’s
the bottom line for most businesses and the
economy, it doesn’t necessarily mean that
survey shows that 23% felt that the reduction
In terms of the size of their outlets,
things are getting better. Indeed, many
in profit margin was the main concern facing
approximately 30% are in excess of 4,000 sq
retailers find themselves competing for a
retailers. This was closely followed by wage
less than 10 staff, according to the survey.
THE PRESSURE ON SALES
Many retailers
find themselves
competing for
a share of an
economic pie that
is not growing.
WHAT’S ON THE MINDS
OF IRISH RETAILERS
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FINANCIAL REVIEWS OVER
THE LAST 12 MONTHS
costs (22%) and competition from larger outlets
like the larger supermarket chains (17%). Other top
concerns included managing cash (10%), rising
utility costs (8%) and access to finance (8%). >>
RETAIL INSIGHT
There’s no ‘fat’ left to cut out from any retail
operation. Retailers are now responding to a new
consumer landscape by looking to different ways of
working in the future – advised by their accountants
There’s no ‘fat’ left to cut
and bankers – whether in terms of consolidation,
smart investment and/or changing work practices
(e.g. more owner-manager involvement).
out from any retail operation.
Cost pressures remain a key concern for many
retailers – from rates to utilities to labour costs –
Retailers are now responding to
which means that policy makers (national and local)
must carefully assess the impact of any changes
likely to increase costs further.
a new consumer landscape
A return to growth will provide some relief - but
in the meantime retailers will have to remain
competitive on price, but compete more explicitly
on service, quality and their key role as ‘local heroes’.
RETAIL INSIGHT
winning formula will be the one that
Retailers are keen to switch from
gets the balance right.
survival mode to thriving mode, and
they know they can’t just keep on
Innovation is not all about
doing the same things.
technology, it can include targeted
sponsorships that reinforce
Many retailers are already
the position of retailers in their
experimenting with new ways of
communities, and forging explicit
engaging with customers and
bonds with local entrepreneurs,
suppliers by combining the best
farmers and ‘foodies’ to surprise and
of the ‘new’ (social media) and the
delight customers with a regularly
‘old’ (helpful customer service). The
changing shopping experience.
INVESTMENT PRIORITIES
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often (45%) than those seeing fewer visits
RESILIENCE &
GROWTH
claim to always shop around/compare prices
to control their spending, and to manage
between stores (Source: www.nca.ie).
it carefully through the week by spreading
out their spending and visits. But it also
Retailers have responded to these trends
The Amárach Research survey shows that
represents an opportunity for retailers to get
through a variety of methods, including
retailers have also seen many changes in
to know their customers better, to reinforce
reducing the number of floor staff as a way
customer behaviour over the past few years.
loyalty and to persuade them to spend more
of cutting costs (66%), discounting (60%)
The key changes include buying more items
in their store than in competing stores.
and reducing the range of products in stock
(35%).
on special offer (72% of retailers strongly
agree) and shopping around more between
These general observations are consistent
stores (60% strongly agree).
with research published by the National
But such measures – although prudent in
Consumer Agency, which shows that price is
the short run – are not conducive to growth
At the same time, slightly more retailers are
the number one factor in deciding where to
seeing customers visit their stores more
carry out the main grocery shop. The same
HOW RETAILERS INTEND TO FINANCE EXPANSION
WILL RETAILERS SEEK FINANCE
OVER THE NEXT 12 MONTHS?
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NCA report showed that 2 in 5 consumers
(39%). This partly reflects consumer desires
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in the long run. Below certain thresholds,
and services. The latter – the bottom line
ways of engaging customers through social
reducing staff levels and product ranges risks
– entails judicious increases in margins for
media and loyalty schemes are considered
undermining the shopper experience to the
products and services where prices may
opportunities by a majority of retailers.
point where they don’t come back, no matter
have been cut too far and/or demand is
Indeed, 71% of retailers surveyed said that
how low the prices.
picking up strongly. Other bottom line
digital marketing, including social media
improving measures include smarter
and mobile apps, provided an opportunity
partnerships with suppliers.
to attract more customers while 68% said
Retailers know this and so many are testing
and developing new ways of winning, keeping
and growing their customer bases. The
focus is on improving the top line as well as
the bottom line. The former entails better
customer service, wider range of products
loyalty schemes might also be a way of
Nor do the opportunities stop there. New
raising the footfall. >>
Reducing staff levels and product
and responding to demand for new products
ranges risks undermining the shopper
experience to the point where they don’t
come back, no matter how low the prices.
HOW RETAILERS ARE RESPONDING
RETAILERS ARE LOOKING TO UP-SKILL
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RETAIL INSIGHT
EXPANSION PLANS
A key indicator of the changing, more positive
mind-set of Irish retailers is their views on
expansion. Indeed, half of those who took
part in the survey (51%) plan to improve or
expand their business in the next 3 years and
majority (two thirds) of retailers, funding
The ‘new normal’ of dampened expectations
their expansion plans will come from retained
and caution change will mean that most
profits, reinvested in the business. Bank loans
retailers will seek to fund any investments
will also be an important secondary source,
through internal resources, focusing initially
alongside credit provided by wholesalers and
on less expensive and/or self-financing
other suppliers.
initiatives, such as training and renovation,
that will deliver quick and measurable returns.
68% of those surveyed have looked for
finance in the past 12 months, while 35% said
Relations between retailers and their banks
they intend to look for finance in the year
will continue to be dominated by traditional
ahead. Furthermore, those who have looked
money handling and transmission services,
for finance in the past are somewhat more
key improvements they anticipate, though a
changing as new payment channels come
likely to look for funding in the future.
on stream. Retailers will continue to invest in
greater focus on marketing and sales is also
About a third (35%) of retailers expect to
the equipment needed to provide customers
considered to be an important focus for the
look for finance from their bank in the next
with more payment options, but will have to
future.
12 months as they respond to opportunities
continue providing more traditional options
in a changing marketplace, though 44%
as well while many customers continue to
All of this will inevitably create demand
don’t expect to do so. The balance, 20%,
demand them.
for additional financial resources. For the
said they don’t know.
many have multiple improvements in mind.
Renovation and staff training are among the
RETAILERS INTENDING TO EXPAND
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RETAILING FOR
THE FUTURE
Retailers are not waiting for the future, according
to the Amárach Research survey. Indeed many
are already investing in measures and initiatives
designed to improve margins. These include
training in financial management, mentoring/
coaching and website development.
Looking ahead, large minorities of retailers
are ready to upskill, with business planning
and cash flow management among the types
of courses they would be interested in doing in
the near future.
Nevertheless, retailers can’t do it all on their
own. The survey asked about issues they have in
relation to banking services and facilities. Around
55% said they had had difficulty getting new
finance in recent times while 50% said they had
RETAILERS’ EXPERIENCE WITH THE BANKS
difficulty when it came to re-negotiating existing
finance terms. However, other aspects of banking
services have been less problematic for most,
though again it depends on whether they have
had cause to approach the banks in relation to
various services and facilities.
The banking relationship doesn’t stop at dayto-day financial needs and near term financial
resourcing. A key finding from the survey is
that 20% of independent retailers expect to
sell their business as part of their long run
‘exit plan’. Another 22% said they expect their
business to be taken over by a family member,
while 58% said that they simply don’t know, or
haven’t decided, what their exit plan will be. For
some, this will inevitably reflect the short term
pressures they face and the resultant uncertainty
about the future.
WHO’S MADE SUCCESSION PLANS
RETAIL INSIGHT
Retailers are already investing in their own
future through training and up-skilling. There is
a huge pent-up demand to learn more skills for
the future. Looking beyond short term needs,
succession planning will emerge as a growing
challenge for many retailers, which, in turn, will
require advice and planning. Their banks can
and will play a key role in securing recovery, and
ultimately in supporting succession as retailers
seek to capitalise on the hard work they have put
in and continue to put in to deliver success.
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THE NEW NORMAL
THREE OF IRELAND’S TOP RETAIL EXPERTS SHARE THEIR VIEWS
ABOUT THE CURRENT STATE OF THE RETAIL SECTOR AND
WHAT LIES IN STORE FOR IT OVER THE COMING 12 MONTHS.
STEPHEN O’RIORDAN
easy access consumers have to
CHIEF EXECUTIVE
shops, it would be unrealistic to
ADM Londis
expect sales through grocery
retailer websites to rise sharply.
One of the biggest challenges
early in the recession was
Cost pressures from utilities,
sterling. Cross-border shopping
rates and banking charges are
was at its peak and the Irish
still significant, despite progress
market had to react to the
on other costs (especially labour
sterling price differential. Londis
and supplier costs). Against a
background of flat sales, any
responded by forming a buying
alliance with Nisa, securing lower
STEPHEN O’RIORDAN
Greater buying power has also
helped support the development
of a wider range of own label
in the past, partly in response
to consumers shopping more
frequently in a larger range of
stores, but spending less per trip.
products (including convenience
foods), alongside a stronger off-
will continue to play – a key role
supplying the sector – including
the banks – to work with retailers
to ensure that viable, profitable,
heart of local communities are
given the support necessary to
survive and grow in the years
are more appreciative of these
days. Of course, Donnybrook Fair
is a niche offering, suited to its
catchment area. But, then again,
all retailers have catchment areas
and the challenge is to identify
what “value” means in terms of
products or services and use
Nevertheless, competition
in giving retailers access to a
remains intense as the cake
more efficient supply chain. This
create awareness, increase the
is a lot smaller, but those
includes placing orders online via
frequency of visits and hold onto
independent retailers who have
iPads to a centralised warehouse
their share of wallet or purse.
come through the recession
and chilled distribution network
are undoubtedly leaner and
as well as other good uses of
stronger. Indeed, convenience
technology that make Londis
TARA BUCKLEY
challenge. For many, this has
retailing today is no longer
store owners more efficient. The
DIRECTOR GENERAL
meant becoming more involved
about ‘premium’ and all about
bottom line is that all retailers
RGDATA
in the day-to-day delivery of
location and value. In other
have to explore opportunities
words, convenience retailers
to be more efficient to save
The bottom line for retailers
up their sleeves and got stuck
have matched the value offer of
costs and to protect margins
serving Irish consumers today is
into running a tight ship and
the bigger multiples while still
– and technology is and will
that they must provide value. But
meeting customers’ needs are
meeting consumers’ needs for
be one of the most important
this doesn’t necessarily mean
the ones who have survived.
easy access and flexible opening
opportunities.
lowest prices. Take Donnybrook
Others have simply responded
Fair, a provider of premium
by widening the range of
But for all the importance of
products in the Dublin area
products that they carry so
Independent retailers are mostly
technology in helping us run our
for example. In the face of the
they can meet a wider range
owner-operators, based in
businesses, online grocery sales
toughest recession in decades it
of customer requirements and
their communities, and they
are unlikely to become much
is not only thriving but opening
needs. Others have introduced
have responded by meeting
bigger than they are already.
new stores by creating a unique
loyalty schemes that not only
the everyday needs of grocery
Even in the UK - with a vastly
shopping experience that
incentivise customers to spend
shoppers for fresh food like
bigger population and more
delivers value.
more in store, but also to test
locally sourced meat and key
developed online shopping
non-food categories like baby
culture - grocery sales via
Part of the secret of independent
products. Nowadays, they
websites are still only a fraction
retailers like Donnybrook Fair is
have to offer a broader range
of regular sales in stores. Given
that they ‘express their Irishness’,
The fact remains that the
of products and services than
Ireland’s small market, and the
something all Irish consumers
retailers who make up RGDATA’s
hours.
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The onus is therefore on all those
job-creating businesses at the
For Londis, in particular,
technology has played – and
trade offering.
TARA BUCKLEY
on already stretched margins.
wholesale prices that meant they
could reduce consumer prices.
increase in costs puts pressure
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ahead.
simple, inexpensive ideas to
Retailers have risen to this
their outlet(s). Those who rolled
new product and service ideas
on loyal customers first.
members are the heart of the
dependence on personal service,
The Irish savings ratio today is
town centre for numerous Irish
the independent retail grocery
more or less at the EU average
towns and villages, providing
sector tends to be a more
(albeit higher than it was in the
jobs at a time when we know
labour-intensive employer, with
boom). Nor should we forget
they’re scarce. Retail ecology on
higher associated operating
interest rates. The fall in the ECB
a high street works best when
costs than either discount
rate since 2008 has effectively
you have a successful grocery
retailers or multiple store owners.
added about €3 - €4 billion a
retailer that generates footfall
Employers have been obliged
year to Irish disposable incomes
that benefits other retailers
to pay wage rates that are
due to the high preponderance
nearby. It becomes a virtuous
higher than the minimum wage
of tracker mortgages in Ireland.
circle, by sustaining an appealing
rate and there is no public policy
and diverse retail experience
for having a different wage
at the centre of the town and
structure for the retail sector
a key driver of the retail
consumer spending is retained in
than applies generally. RGDATA
landscape is demography. We
the town which in turn generates
welcomes the current review
are experiencing a baby boom
jobs for the community and rates
of the JLC and hopes that the
for local government.
review will result in the abolition
SEAMUS COFFEY
babies don’t eat as much as
of this policy.
ECONOMIST
twenty-somethings! Emigration
School of Economics
also means fewer twenty-
University College Cork
somethings (the key household
Moreover, independent retailers
SEAMUS COFFEY
Beyond the economic cycle,
right now, but the fact is that
have held on to more than a third
In terms of banking services,
of the Irish grocery market in the
one of the biggest challenges
face of extraordinary pressure
will be to integrate new
The worst of the contraction
should also note the continuing
from the multiples and the
technologies and processes
in Ireland’s retail sector
inflow of immigrants into Ireland
discounters. A sure sign they are
(SEPA from 2014 onwards,
happened back in 2009-10.
despite the recession (off-
providing services and value that
see page 18) without disrupting
Retail sales have effectively
setting some of the impact of
Irish shoppers appreciate.
the customer experience.
been flat ever since, tracking the
emigration). Ultimately a return
Ultimately these systems will
level we had back in 2004-05.
to more people in jobs will
The Joint Labour Committee
increase efficiency of payment
Not much higher and not much
contribute more to recovery in
issue is coming back on the
for our members but providing
lower, allowing for changes in
the retail sector than modest
agenda, arguably at the worst
the correct training will be
how the CSO measures its retail
wage increases for those
possible time. By virtue of the
important if retailers and
sales index.
already in jobs.
size of stores and the high
customers are to benefit.
On some measures we are closer
As for retail investment, we
to a ‘more normal’ level for retail
can expect to see general
sales, following the overshoot
business investment rise
(in sales and floor space) that
ahead of any increase in
was fuelled by credit during the
consumer spending, with
boom. On the latter point, it is
a focus on replacement
worth remembering that short
investment for things like
term credit reached €15 billion
newer equipment and shop
at the peak, and is now back
fit-outs than necessarily any
to about €7 billion. This is one
expansion in the form of new
reason why retail sales have
premises or additional stores.
fallen significantly more than
The ‘new normal’ for retailers
extraordinary pressure from the
disposable incomes: credit is no
and for consumers is a more
longer fuelling a retail splurge.
cautious, more prudent
multiples and the discounters”
Another measure of the ‘return
set to stay that way for some
to normal’ is the savings ratio.
time to come.
“Independent retailers have held
on to more than a third of the
Irish grocery market in the face of
formation age group), though we
business environment. It seems
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A MATTER OF
CONVENIENCE
THE IRISH RETAIL CONVENIENCE SECTOR IS A VITALLY IMPORTANT
PART OF THE IRISH ECONOMY BOTH IN TERMS OF ITS CONTRIBUTION
TO GDP AND EMPLOYMENT. WITH AROUND 20% OF AIB’S SMALL
BUSINESS LOAN BOOK NOW ATTRIBUTABLE TO THIS SECTOR, THE BANK
IS COMMITTED TO HELPING THE SECTOR GROW, SAYS KEN BURKE.
The retail convenience sector is a key SME sector for AIB. On a
leading to consumers reducing their weekly spend by trading down to
daily basis our branches and business centres are dealing with retail
value-driven brands and categories.
convenience customers the length and breadth of Ireland. In overall
credit terms the retail sector represents approximately 20% of
One of the significant impacts of the economic collapse in Ireland is
AIB’s SME loan book in 2012 while around 15% of new credit was
that consumer spending fell by 23% between 2007 and 2011
to Irish retailers.
and the retail convenience sector felt the brunt of this fall. The
survey conducted by Amarach Research, on behalf of AIB, shows
AIB is acutely aware of the important role the Irish retail convenience
that 6 out of 10 retailers experienced a reduction in turnover between
sector plays in servicing the needs of consumers across Ireland and
2011 and 2012 and that one of their key issues is reducing profit
the role it plays as a major employer in virtually every town throughout
margins. Managing a retail convenience business in these economic
the country. AIB is also aware of the challenges facing the sector as a
circumstances is very challenging and requires intensive focus
result of the economic downturn and is very keen to provide support
on costs and ongoing initiatives to maintain or where possible
for the sector.
increase revenue.
The retail convenience sector in Ireland is worth €9 billion annually and
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In these circumstances AIB has experienced a significant reduction
grew by just 0.01% in 2012. Growth across the sector will continue to
in demand for credit from the sector over the last number of years
be subdued as austerity measures continue and consumer sentiment
as decisions to invest in businesses are being delayed or put off and
remains low. Competition in the sector is also aggressive as consumers
the level of risk appetite by retailers across the sector has reduced.
change their spending habits. In 2012, food inflation in Ireland rose 5%
A significant proportion of credit requests and sanctions relate to
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working capital requirements, either for increased working capital,
Re-fit/enhancements to the retail outlet: Typically stores need to be
or for support for businesses where the turnover has reduced.
revamped or refreshed every five to seven years. These costs need to
Where AIB is satisfied that the business can demonstrate the ability
be factored into the business plan.
to repay in the medium term, it has been supportive and sanctioned
these requests.
Investment in shop unit to take on franchise/symbol: There will be
occasions when retailers decide to expand their business by joining
The bank’s recent experience has shown that some retailers have
or switching retail symbol groups or becoming a frachisee of a larger
significant levels of debt where investments have been made in
franchise group. This is both an exciting and daunting decision but one
property. Where this coincides with a reduction in turnover as a
than can create many positive business benefits.
result of the economic downturn, it can leave the business in a
difficult position. AIB is working closely with customers in this
In addition, some retailers are seeking bank finance to fund the
situation on a basis to seek to work towards a sustainable solution
purchase of new premises to accommodate the expansion of their
and a path to viability.
business. Some are also seeking to refinance other bank facilities
from financial institutions that have indicated that they are exiting
Despite these economic realities there are many businesses that
the Irish market.
are making progress and some evidence of expansion with buy
out of leases or refit/extension of existing premises. The nature
Over the last couple of years, retail expansion has been limited. There
of credit requests for investment AIB is seeing typically relate to a
are, however, opportunities for retailers to take advantage of lower land
number of key aspects of the business.
and property prices in enhancing their existing operation.
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Getting Finance for Your Business
AIB’s primary criteria in assessing new credit facilities, or refinancing
have experienced in the past. It is important that we ensure that our
existing ones, is ensuring that the business generates adequate cash-
customers are aware of what information is required and that we are
flow to service its obligations.
open and engaging with our customers in this regard.
The bank is continuously reviewing its lending processes to ensure
When approaching the bank with proposals for credit we are actively
that it is as efficient and effective as possible so that our customers
encouraging our customers to come prepared with the information
can access funding for their businesses when they need it. In doing
that will help us in making an informed credit decision. This typically
so however we must be cognisant of, and compliant with, the
includes:
regulatory requirements that are in place to ensure the prudential
O An outline of the proposal.
management of risk by the bank and the protection of the customer.
OA business plan.
In reviewing an application for additional credit facilities, we are
OFinancial information including audited accounts for the previous two
obligated to consider the totality of a borrower’s connected debt and
years as well as cash-flow and financial projections for a minimum of
determine both the appropriateness and affordability of the credit
two years.
facilities applied.
We would strongly recommend that SME customers seek advice
This has resulted in a change in how relationship managers engage
in preparing their application (particularly for more complex credit
with customers and has led to additional information requirements and
applications) from their accountant or business advisor. This support
more intensive and detailed credit assessment than customers would
should enhance the business case which leads to a more informed
credit application. At the core of this credit process is a desire on
behalf of the bank to support customers in this sector with a key
Helping Irish retailers
RECENT EXAMPLES
AIB has been active in lending
to existing and new retail clients
throughout the country. Typically
credit has been given for things like
shop refurbishment, the acquisition
of a franchise license from a master
franchisor or the purchase of new
premises as part of a wider expansion
of the business.
One such customer is Shaun Boyce,
who operates three family-owned
Centra outlets in Donegal. Over the
past few years the business has
expanded rapidly.
“We operate three Centra retail outlets
in north-west Donegal,” says Shaun
Boyce. “This is essentially a family
owned and run business which has
expanded over the years from the
original base in Carrigart. We now
also have outlets in Falcarragh and
Dunfanaghy. I took on the business on
returning from Saudi Arabia. In 2012
we decided that the Carrigart outlet
needed a facelift,” he says.
“In the retail convenience trade it is
important to keep the shop appearance
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SHAUN BOYCE OPERATES THREE FAMILLY-OWNED CENTRAS IN DONEGAL
determinant being the customer’s ability to repay the facility sought.
Once all of the information is received, the credit decision making
process begins. In many cases the decision will be made locally but
for more complex application, the decision will be made jointly by
the relationship manager and an independent credit team. Some of
the considerations the bank will take into account before arriving at
a decision are the dynamics and challenges within the retail sector,
the borrowers’ business model and competitive position and the
management team’s capabilities. The bank will also stress test future
projections to see if the cash-flow can sustain the proposed debt
repayments.
through an efficient application process. This involves customers
completing a standard AIB SME loan application form with no
requirement to provide business plans, audited accounts or forecasts.
The decision making process is made locally and is delivered to the
customer on a next day basis. Typically, the credit is unsecured in the
case of unincorporated businesses while a personal guarantee will be
required for incorporated companies.
It is important also to point out areas where the bank does not have a
risk appetite, in particular, when it comes to financing highly-leveraged
transactions where the repayment capacity is not evident. Nor does it
have a desire to provide credit to customers who may have significant
Once the credit decision is made, the bank will quickly inform the
customer of the outcome and, if the decision is made to sanction the
credit facility, a Letter of Offer will be prepared for the customer’s
signature. If the bank declines the application, it will inform the
customer of the reasons why it was declined and outline to them
details of the credit appeals process. At all stages, it is the bank’s desire
and intention to ensure that we are professional, engaging, honest and
open in all of our interactions with our customers.
AIB recently launched an initiative for loans up to the value of €25,000
that is designed to promote credit availability to smaller businesses
personal or other financial obligations particularly where the cash-flow
generated by the core business is required to service the repayments
on these obligations.
The reality for AIB is that if it is to return its own business to viability,
it needs to lend more money to SMEs. This fact is often missed in
the ongoing public discourse on availability of credit. The overall
and important message to the retail convenience sector is that AIB
is already supporting and will continue to support the sector. We
would strongly encourage any retailer who is thinking of expanding
or is seeking finance to support working capital or indeed refinancing
existing debt to approach the bank. O
fresh and it is important to protect
the Centra brand. We approached
AIB in 2012 seeking additional
finance and we subsequently met
with the bank staff from the North
West Business centre on site in
Carrigart. Our loan application was
subsequently approved and we were
able to complete the renovations
on schedule and in time for the
Christmas trade,” says Shaun.
Owen Hoctor (right), owner of
McLoughney’s in Shannon, is
another long-term customer of AIB.
“McLoughney’s has banked with AIB
for over 20 years and in recent times
I have gone to the local AIB branch
to look for finance to expand my
business and received approval in a
reasonable timeframe and meeting
all my requirements,” says Owen.
Based in Shannon, Owen
was sanctioned credit
facilities to take on an Eason’s
franchise which involved additional
working capital for stock and
funding for the relocation and
fit-out of their store to bigger
premises, situated in the Shannon
Town Shopping Centre.
OWEN HOCTOR, OWNER OF MCLOUGHNEY’S IN SHANNON
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B A N K I N G M AT T E R S
THE COUNTDOWN
TO SEPA
THE COUNTDOWN TO THE
INTRODUCTION OF THE SINGLE
EURO PAYMENTS AREA HAS BEGUN
IN EARNEST. IF YOUR BUSINESS
USES DIRECT DEBITS OR MAKES
ELECTRONIC PAYMENTS, YOU NEED
TO START PREPARING NOW.
SO, WHAT EXACTLY IS SEPA?
which the move to SEPA brings:
In addition, AIB has set up a
The replacement of National
dedicated SEPA Migration
The Single Euro Payments Area
Sort Codes (NSC) and Account
team to assist customers
(or SEPA for short) is a European
Numbers with Bank Identifier
in this process. Our SEPA
Union regulation which will
Code (BIC) and International
change how businesses make
Bank Account Numbers (IBAN)
specialists have the knowledge,
expertise and solutions to
and process electronic euro
payments. So, if your company
The introduction of a new
uses direct debits to collect
file formats for processing of
money or make credit payments
electronic credit and direct debit
electronically, SEPA is going to
files.
meet your SEPA requirements
today. For the most up to
date information on SEPA,
please visit our website
www.aib.ie/sepa or email us
impact you.
at sepa@aib.ie.
Different business rules of which
SEPA will make it easier for
all customers must comply with.
payment files and what business
marketplace, as there will be no
processes need to change to
distinction between making a
meet the new requirements.
Euro payment within Ireland and
SO, WHAT DO I NEED TO DO?
WHAT COUNTRIES DOES SEPA
APPLY TO?
As a business, you need to
across Europe.
SEPA will affect every
start this assessment and
The SEPA zone countries
business that makes payments
commence migration to SEPA
are Austria, Belgium, Britain,
electronically, whether by credit
now as the deadline has been
Bulgaria, Cyprus, Czech
transfers or direct debits. For
set at February 1st 2014. Should
Republic, Denmark, Estonia,
the majority of businesses,
you not make the necessary
Finland, France, Germany,
With effect from February
particularly small and medium
changes, you will be unable to
Greece, Hungary, Iceland, Ireland
1st 2014, the existing Irish
sized enterprises, migration
make electronic payments after
(Republic of Ireland), Italy,
payment electronic system
to SEPA will require you to
this date. AIB recommends that
Latvia, Liechtenstein, Lithuania,
will close down. After that
make changes to your internal
you make contact with your
Luxembourg, Malta, Monaco,
date, all electronic payments
accounting/payroll systems.
software provider to determine
Netherlands, Norway, Poland,
in euros must be processed
To what extent, depends on a
the scale of change and timelines
Portugal, Romania, Slovenia,
through the new SEPA schemes.
number of factors – like how
for availability of their SEPA
Slovakia, Spain, Sweden and
The most significant changes,
you make your payments, what
payment services.
Switzerland. O
SO, WHAT IS CHANGING?
18
software do you use to create
you to trade in the European
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OUTLOOK
R E TA I L T R E N D S W
Retailing is at the heart of the
While there were signs of
independent retailers look at
Irish economy. The retail sector
recovery towards the end of
the multiples who seem to have
in Ireland is the largest employer
2012, unfortunately that trend
endless marketing budgets in
with over 260,000 people
has not emerged in the first
the race to the bottom in terms
employed in the sector. This
months of 2013. Indeed the
of gaining price-driven market
accounts for 14.5% of Ireland’s
environment for retailers remains
share.
SIMON HEALY, RETAIL SECTOR
SPECIALIST, AIB
total workforce. According to
challenging with consumer
IBEC, Ireland’s retail sector is
spending still bouncing along
It is indeed a great time for
and consumer lose but the
made up of predominantly small,
the bottom. The Government’s
the discounters and for the
‘discounters’ keep on winning!
indigenous companies, with
austerity programme, while
consumer. But one only has to
approximately 44,000 active
necessary, has had an adverse
look at the retail fuel forecourt
wholesale and retail enterprises
effect on consumer confidence
sector in the UK to understand
in Ireland. Across the sector,
and the prospect of significant
that once the discounters have
86% of retailers have less than
retail sales growth in the first half
had their way and closed local
ten employees and 86% are
of 2013 appears unlikely.
retailers, they simply put the
RETAILER FRUSTRATION
prices back up! According to
Irish-owned.
I am of the view that Irish
retail wholesaler Palmer and
According to the latest AIB/
Retail sales are down by close
retailers across all trades are
Harvey, in its Forecourt Report,
Amárach Research Survey, 60%
to 30% since the so-called Celtic
having a hard time of late.
the number of petrol stations
of retailers are pessimistic about
Tiger era and this in turn has
There are financial worries
in the UK has plummeted to a
future economic growth and the
had a dramatic impact on the
coupled with spiraling costs and
record low of 8,500, a massive
prospects for their sector. What
state’s revenues brought about
decreased sales. Discounting is
fall of 60% from the boom
I see in my work with retailers
by a decrease in the amount of
the new game in town and the
period 20 years ago when
is widespread frustration - with
VAT and other taxes that the
Irish consumer is now shopping
21,000 forecourts were found in
the sluggish economy, with the
exchequer depends on.
around for value. Symbol and
the UK. Ultimately the retailer
slow decision making on finance
issues, with pressures on margins
in the face of competition and
PRESSURE ON MARGINS, FLAT SALES, RISING OVERHEADS AND
UPWARD ONLY RENT REVIEWS ARE JUST SOME OF THE ISSUES
RETAILERS HAVE HAD TO CONTEND WITH OVER THE PAST FEW
YEARS. HOWEVER, THERE APPEARS TO BE A NEW FOUND RESILIENCE
AND CAN-DO ATTITUDE PERMEATING THE INDUSTRY AND THIS IS
GOOD NEWS FOR RETAILERS, WRITES SIMON HEALY.
frustration with the overall
uncertainty that has permeated
the sector.
They are also frustrated with the
changes in supplier credit terms.
It is not uncommon for suppliers
to ask for retailers’ credit card
details to pay for goods where
CHALLENGES AND
OPPORTUNITIES
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>>
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R E TA I L T R E N D S
accounts have been moved to
other hand, can’t just ignore the
“zero credit” status, even when
issue and point to the lease and
the retailer has paid on time for
the retailer’s legal obligations.
years. Compounding matters
In many cases where there is
is the ability of retailers to pay
intransigence on one or both
themselves a half decent wage
sides, an empty retail unit is the
at the end of every month after
more likely outcome.
every other cost has been met.
The retail sector has been
On the consumer side of the
impacted recently with
equation, there is a clear move
the closure of the British
towards the discounters as
multinational music retailer
customers are increasingly
HMV and the decision of B&Q
seeking out perceived value,
to enter examinership and close
particularly when it comes to
two of its stores in Athlone and
food. Indeed price competition
Waterford. Perhaps the most
throughout the whole retail
significant factor of the B&Q
sector is the single most
move to the examiner process
effective tool in growing sales
is the potential wider impact
as consumers are shopping at
it will have for landlord/tenant
multiple outlets as opposed to
relationships across the retail
traditionally shopping at a single
sector. After wages, rent is the
outlet. Retailers are adapting
next biggest cost for domestic
price and margins, many retailers
Alarmingly, 58% don’t have any
low price strategies; quality has
and international retailers
are simply not in a position to
exit strategy in place at all.
become less appreciated by the
in Ireland. According to the
pay more in wages at this time.
hard-pressed Irish shoppers,
company, the total rent roll for
A key determinant on wage
Value creation is the raison
many of whom have moved
the nine B&Q stores is €11.6m a
growth will be increased sales.
d’être of any business entity.
from purchasing quality brands
year, €5.8m above market rates.
The growth in retail sales will be
Many people use a broad
to substitute products and own
Should the Commercial Court
largely dependent on the Irish
definition of value creation, and
brands.
agree to rescind the cross-
consumer regaining confidence
they include in it some financial
guarantees between B&Q and its
and spending money on both
factors (balance sheet analysis,
Online retailing (e-tailing),
parent company, the Kingfisher
essential and, more importantly,
cash flow, profit), internal
meanwhile, continues to grow
group, there could be broader
non-essential goods at retail
capabilities (ability to innovate,
and it is estimated that as
consequences for the retail
outlets.
leadership, people, brand
much as 57% of Irish consumers
landscape.
shopped online over the
future potential of the company
retail sector is succession
(growth, revenue forecasts, risk
planning. This is a key concern
assessment). The bottom line
for many owner-managed retail
is that once you have created
CREATING VALUE
outlets across the country. The
value, you should know what
reality is that the vast majority
you are going to do with it. As
Another key challenge is the
of retailers do not have an exit
with most retailers, the success
facing the sector is the ongoing
Croke Park agreement and
strategy for their businesses.
of the business is dependent on
negotiation between retailers
the impact it could have on
Most independent retailers
the drive, energy and direction
and landlords regarding rent
consumer spending. There is also
either inherited a family business
provided by the principal of
reductions. It is in both parties’
pressure on retailers in relation
or saw an opportunity to run
the business. Without this key
interests to partake in the
to the minimum wage. The
their own business successfully.
asset of the business, the future
process. The retailer needs to be
employees in the front line have
According to the AIB/Amárach
is at the very least uncertain
upfront about the way in which
been burdened with increased
Research Survey, around 22%
and the consequences could be
his business is being impacted by
taxes with the introduction of
of retailers said that their
catastrophic for the business.
unsustainable rent, particularly if
taxes like the universal service
businesses would be passed
The key here is to start planning
the lease commenced during the
charge and the property tax.
to family members with 20%
early to produce an exit/
boom years. The landlord, on the
With the downward pressure on
saying their business will be sold.
succession plan.
Christmas 2012 period. Irish
retailers are also developing
their own online strategies to
deal with the growth in online
shopping.
One of the many challenges
20
reputation, customer base) and
Another key issue facing the
OUTLOOK
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Once the finance requirement is
Online shopping will continue to
established, preparation is key.
grow as Irish consumers search
Involve your accountant and
for value on a wider purchasing
wholesaler where necessary.
platform. No particular part of
It’s important to quantify
the sector will be immune from
improvement in sales, costs
this trend but the fashion and
and margin and demonstrate
electrical goods sectors will
payback when making credit
probably be affected most.
applications.
There is an attitude in the retail
sector that I often think is unique
in Irish business. When things are
going well, even as competitors,
we talk to each other and remark
LOOKING FORWARD
how good things are. That
exudes confidence throughout
An important attribute for any
the business and is fantastic for
business trading through difficult
retailer and employee morale.
times is the need for ongoing
When things are bad, we talk
communication with all key
to each other and remark that
stakeholders. These include
we have never seen it so bad.
customers, suppliers, wholesalers
Unfortunately, that negativity
On a positive note, the AIB/
understanding a process from a
and financial institutions. Look
quite often also passes through
Amárach Research Survey
theoretical perspective and put
at the turnover of the business
the business and has a negative
found that 77% of retailers
best practice to work in your
and revisit problematic areas.
impact on morale.
have initiated reviews of their
business on a daily basis.
Concentrate on costs, create
businesses through external
and deliver budgets and ensure
But what retailers have in
parties with the main emphasis
the good use of management
common in this country is
information to deliver value and
resilience and a “can do”
a better bottom line.
approach. Every day is a new
on finance matters. I stay
There have been problems in
accessing credit and where there
positive because the ‘head in
is a credit process it has been
the sand’ approach does not
hard to navigate for retailers.
and will not work in this present
trading day with new potential.
There will continue to be
Whether money is required for a
Retailers need to replace
climate. The recession is passing
pressure on margins, particularly
frustration with a process that
revamp or new opportunities, the
on local retailers, as lower prices
very slowly and the financial
sees them plan for the future, a
important step is to engage early
will be the main strategic driver
effects are evident in the annual
plan that will ease the frustration,
with the bank and find out what
of sales with the consumer
financial accounts. External
put things in perspective and
information will be required to
focused on value for money and
maps the road to control. There
support an application for credit.
less focused on quality.
are many factors outside their
parties can bring huge value
in a review process, see things
control and there is little point
differently and objectively make
recommendations to the retailer.
“Concentrate on costs, create
significant amount of retailers
and deliver budgets and ensure
management and social media.
the good use of management
daily basis. We can contract in
thing for certain is that there
coming months. We need to
adapt as a sector, regain our
confidence and be ready for
We learn from our customers
and wholesalers/suppliers on a
they CAN control. The one
will be uncertainty over the
want to upskill in areas such as
business planning, cash flow
excessively about them.
Retailers need to control what
Interestingly, the AIB/Amárach
Research Survey found that a
in trying to tackle or worry
information to deliver value
when the economic clouds
invariably lift and consumer
spending increases.
O
expert help from time to time
when necessary, but there is no
greater way to learn than by
and a better bottom line”
Simon Healy is a Retail Sector
Specialist for AIB.
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TO FIND OUT HOW WE CAN HELP YOUR BUSINESS VISIT WWW.AIB.IE/BUSINESS,
DROP INTO YOUR LOCAL BRANCH OR BUSINESS CENTRE OR CALL US ON 1890 47 88 33.
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in association with
Lending criteria, terms and conditions apply. Credit facilities are subject to repayment capacity and financial status and are not
available to persons under 18 years of age. Security may be required. Allied Irish Banks p.l.c. is regulated by the Central Bank of Ireland.