OUTLOOK 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 OUTLOOK X FO R E WO R D 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 OUTLOOK O R E TA I L 2 0 1 3 3 OUTLOOK X 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 4 OUTLOOK O R E TA I L 2 0 1 3 OUTLOOK O R E TA I L 2 0 1 3 5 OUTLOOK X A I B / A M Á R A C H R E S E A RC H S U RV E Y 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 6 OUTLOOK O R E TA I L 2 0 1 3 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 OUTLOOK O R E TA I L 2 0 1 3 7 OUTLOOK X A I B / A M Á R A C H R E S E A RC H S U RV E Y 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? 8 NCA report showed that 2 in 5 consumers (39%). This partly reflects consumer desires OUTLOOK O R E TA I L 2 0 1 3 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 OUTLOOK O R E TA I L 2 0 1 3 9 OUTLOOK X A I B / A M Á R A C H R E S E A RC H S U RV E Y 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 10 OUTLOOK O R E TA I L 2 0 1 3 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. OUTLOOK O R E TA I L 2 0 1 3 11 OUTLOOK X E X P E RT V I E W S 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. 12 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 OUTLOOK O R E TA I L 2 0 1 3 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 OUTLOOK O O R E TA I L 2 0 1 3 13 OUTLOOK X R E TA I L C O N V E N I E N C E S E C TO R 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 14 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 OUTLOOK O R E TA I L 2 0 1 3 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. OUTLOOK O >> R E TA I L 2 0 1 3 15 OUTLOOK X R E TA I L C O N V E N I E N C E S E C TO R 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 16 OUTLOOK O R E TA I L 2 0 1 3 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 OUTLOOK O R E TA I L 2 0 1 3 17 OUTLOOK X 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 OUTLOOK O R E TA I L 2 0 1 3 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 OUTLOOK O R E TA I L 2 0 1 3 >> 19 OUTLOOK X 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 O R E TA I L 2 0 1 3 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. OUTLOOK O R E TA I L 2 0 1 3 21 OUTLOOK 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. 22 OUTLOOK O R E TA I L 2 0 1 3 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.