JOINT COMMITTEE ON ENTERPRISE, TRADE AND EMPLOYMENT debate -
Tuesday, 3 Feb 2009

Retail Excellence Ireland.

Chairman

The next group represents Retail Excellence Ireland. Our former colleague, Ms Liz O'Donnell, is in the Visitors Gallery and is very welcome. It is 10.29 a.m so Retail Excellence Ireland has already excelled in its punctuality.

We have already received a submission from Retail Excellence Ireland and the witnesses have five minutes to present a summary. The group is represented here by Mr. David Fitzsimons, CEO, and Mr. Kevin Jephson, director of Ardkeen Quality Foodstore in Waterford. I welcome the witnesses and thank them for attending. We have a busy schedule and I must ask them to keep their summary to five minutes. It will be followed by a discussion with members. There will be some fairly searching questions but I have no doubt the witnesses will be capable of answering them.

Before we begin, I draw attention to the fact that members of this committee have absolute privilege but the same privilege does not apply to witnesses. We explain this to everyone who appears before a committee although I am sure the former Deputy, Ms Liz O'Donnell, has already explained it. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable. Is Mr. Fitzsimons to make the presentation?

Mr. David Fitzsimons

We shall share our time, if we may.

Chairman

I will allow the witnesses three minutes and two minutes of speaking time, respectively.

Mr. David Fitzsimons

Mr. Kevin Jephson is an independent retailer in Waterford, a county in trouble, and he employs 130 people there. He is also a board member and designate chairman of Retail Excellence Ireland. He will be chairman for 2010 and 2011.

Retail Excellence Ireland received many calls from members of the media in recent months and they wished to know who we are. In 1995 the then CEO of the South Dublin Chamber of Commerce and I established a company called Crest, which was set up to help independent retailers in the county. The Square, Tallaght, the biggest shopping centre, had just been built and a number of retailers were scared. Our organisation grew from that. The Deputy from Mayo, on my left, would understand fully how it grew through the chambers of commerce of Ireland and the chamber structure round the country. In 1998, we decided to pull it back and form a national organisation. Thankfully, in 1999 the then Tánaiste and Minister for Enterprise, Trade and Employment established a company called SkillsNET Limited and we have received funding from that organisation since, which we found to be highly beneficial. Today we are an organisation with 580 company members and about 8,000 stores. We have the luxury of having mainly independent and medium sized stores. We do not have anyone behind us who is funding us. We are not backed by suppliers, manufacturers or by big grocery chains. We are a fairly honest organisation and I believe we are also fundamentally behind the truth being brought to the market, including the Sunday Business Post article of 1 February.

We are here to discuss retail planning. Our members find themselves in a very grave position. There is much misinformation in the marketplace and the Tánaiste has not been very giving to the industry in recent times. The NCA report last week claimed there is a 51% differential in prices between the Republic and Northern Ireland. That is untrue. The analysis was of just 14 UK stores and I am not here to apologise for their bad behaviour. The average independent retailer is on the verge of collapse. The biggest retailer in the country with 120 leases has stopped paying rent this week. Two national companies are on the verge of examinership, one of which has postponed it until this week and is sitting down with some landlords with a view to doing some business. This goes right down to the small independent retailer.

I had a pint last Thursday evening with three retailers in Ennis, County Clare and two of their businesses will fail this week. The big news stories such as what is happening to Superquinn stores, the Chartbursters and so on hit the press, but it is the trickle that is not getting into the public domain. We are predicting 40,000 job losses this quarter. This sounds excessive, but it is true. It is the reality caused by many issues, the perfect storm for Irish retailers. The legislators must act very soon to stem the tide.

There are two central issues of our submission on retail planning. First, we believe the retention of the cap is a good thing for retail and for consumers in Ireland. Second, the review gives us an opportunity to bring some better practice to retail planning, which in the past number of years has lost its way. May I hand over to my colleague Mr. Kevin Jephson?

Mr. Kevin Jephson

I am a director of Ardkeen Quality Foodstore in Waterford and a member of the board of Retail Excellence Ireland.

In regard to the retail planning guidelines, we believe that the review that is under way should retain the cap. If recent events have taught us anything, it is that a little regulation is a good thing. We believe that retail formats need to be regulated. The Competition Authority has triggered the review. Its premise for doing so is a little mysterious and it has to do with discounter competition. The evidence is that there is plenty of competition from discounters. In the past few months, the discounters have done very well. Their format is slightly smaller but it is working very well for them. I do not want to attack the Competition Authority but it has been wrong about the groceries order and I think it is wrong about the need for larger format retail stores. We were promised all sorts of benefits from the removal of the groceries order, a benefit of €500 per consumer per year. That did not happen. What happened is that emergency legislation was required to prevent the selling of alcohol below cost.

The removal of the cap could potentially lead to a rush among local authorities to be the ones to grant permission for one of these massive out-of-town developments which would be purely motivated by the rate income. Things like that have happened. It would not be good.

There are statistics on what has happened in the UK, which is the nearest example, with large out-of-town developments. The demise of the UK high street is well documented. It is something I hope no one would like to see here. What we need is strong indigenous Irish retail competing toe to toe with whatever other entrants there are in the market. That is what we want to generate vibrancy.

The UK example is what we do not want. They have done some research, which we highlighted in our submission, which refers to money spent in a local grocery outlet. The research reckons £10 spent in a local grocery outlet was worth £24 to the local economy, but the same £10 spent in a major brand multiple was only worth £14. It confirms the old adage that one's £20 is in London before one gets back to the car. That is the way it goes.

These large out-of-town developments do not constitute good planning. They are car-based in that one needs a car to get to them. This excludes those who do not have cars and there is already a selection of socio-economic groups going to such places. The end result will be that large developments which can only be accessed by car will divide communities. They will drive a wedge between communities. It is not good in that regard.

There is another reason the cap is not a good idea. At present, there is plenty of competition but this need not necessarily provide global retailers with exactly what they want. They are well capable of coming here and doing business on our terms with good planning. We do not want to leave ourselves wide open to a situation where a large multiple will set up a large store, generate substantial turnover and do very well because of predatory pricing. This will lead to the failure of local indigenous retailers, whereby the large multiple will have the market to itself. That in itself is anti-competitive. These are reasons for retaining the cap.

Deputy Damien English

Mr. Jephson reflected what we came across last week when we visited certain towns in the North.

His main argument against increasing the cap would be the experience of out-of-town large retail outlets. Would he still be against increasing the cap where a development was in the centre of a town?

The summary of the written submission mentioned four or five areas the delegation sought to discuss. It mentioned better enforcement of use clauses. Would Mr. Fitzsimons clarify that problem?

The other issue raised was the need to ensure greater equity in car parking charges across all retail formats. I presume this means that if there is an edge-of-town or out-of-town retailer with large numbers of car parking spaces, it should be charged to subsidise local authority car parking spaces. I want to confirm that this is what was meant. That was also discussed last week and there is merit in the idea.

Mr. David Fitzsimons

There is probably a perceived inequity between the high street and the retail park that has grown over time. On the use clause, there has been a willingness among local planners to allow comparison fashion stores, grocery and pharmacy outlets to open in big box units. Each of those are constituents of our members. However, as a strategic-thinking organisation, we believe that will have the net effect of providing retailers with a low-cost option out of town and will suck the very heart out of the high street. One will be left with the peripheral or bipolar-type high street with businesses which cannot go out of town such as coffee shops, bookies and charity stores, which is the case in the UK.

Most retail park and out-of-town shopping centres provide free car parking. Prior to Christmas we conducted a study on car parking charges nationwide which we still have to disseminate to every county councillor in the country. There is a massive divergence in car parking fees in every town, private car park and shopping centre in the country. There is a need for strategic thought on parking charges and the alternatives in local markets. At the moment we are making consumers' minds up for them too easily and the local high street retailer is at a major disadvantage.

Deputy Deirdre Clune

What about the cap?

Mr. Kevin Jephson

It is a question of scale. We did not discuss it in our submission but a cap exists because too big a development will suck up the turnover from surrounding areas and lead to a lack of choice of retail formats. We do not have a city big enough to accommodate one massive outlet in its centre.

Deputy Deirdre Clune

Superquinn is a member of the organisation. I am sure Superquinn and other stores would have an opinion on the size of retail outlets in neighbourhoods, cities and towns.

Mr. David Fitzsimons

We consulted with all of our members, via e-mail, prior to the making of our submission. We tend to get more of a reaction from small independent jewellers, pharmacies and grocery stores than from the big guys who are well able to look after themselves. Most of the bigger organisations are involved with us because we are an excellent organisation. We are a learning organisation, we travel the world and can open doors for them into wholefoods or Saks Fifth Avenue, Harvey Nichols or Selfridges. The advocacy or representation service, led by former Deputy Liz O'Donnell, is new to us and has arisen out of desperation. We took the decision seriously and find ourselves with a different day job at the moment as a result.

Deputy Deirdre Clune

The question arises because discount stores are recommending an increase and are not happy that there is a limit on floor space in urban centres. A submission was made to that effect this morning and I asked if Mr. Fitzsimons had an opinion.

Mr. David Fitzsimons

Ireland is a very small country of 4 million people and scale worries us in that regard. I look forward to seeing the effects of the opening of IKEA. I spent some time over a couple of glasses of wine with the person responsible for a similar development in Ethiopia. Our members in homeware and furniture in Dublin and beyond are scared. They already have the perfect storm in the shape of a reduction in sales of between 50% and 70% and much of their business going up North. In addition, every one of their headline business costs, such as wages, is going through the roof. Our minimum wage costs are now the second highest in Europe. In an example of very poor behaviour, landlords around the country are falsely inflating rent at review time.

I look forward to highlighting tomorrow some of the inaccuracies in the Forfás report in the way it draws parallels with the honourable German store up the road and rents being paid on Grafton Street, which are not like for like. Scale has to be questioned.

Deputy Deirdre Clune

Scale will form an important part of the retail planning guidelines, in towns and outside them.

Deputy Damien English

In some of the towns we visited last week the view was expressed that, in the absence of caps, the best of a variety of bad options is to have larger stores in the middle of town, so that at least people are not sucked out. A large-scale store will have a major impact regardless of whether it is in the centre of town or a mile outside.

Mr. David Fitzsimons

Where market share goes to any one operator in any one market, a bit like with energy at the moment, bad practice will creep in.

Senator Brendan Ryan

The delegates are obviously strongly in favour of the retention of the cap in retail planning guidelines. What do they think of a possible mechanism within the guidelines allowing for one-off developments, such as IKEA, in which somebody might make a particularly strong case?

Mr. David Fitzsimons

As Mr. Jephson said, if there are rules they should be for everyone. I do not think Ireland Inc. should modify the rules to suit indigenous or international retailers. We need to agree on a playing field in Ireland because it is a small market and we should let everyone get on with their business. Organisations like ours are pro-competition and support employment standards in the retail sector. We aim to assist players in being the best and, thankfully, the Tánaiste has made the proactive move of opening the doors of Enterprise Ireland to our members. On 10 February, 20 Irish retailers will meet Enterprise Ireland to discuss their international growth. This is a good news story for Ireland. The rules should be defined and people should be allowed to play fair and get on with business.

Deputy Chris Andrews

Rent, rates and parking charges will be higher in town centres and there will also be significant parking restrictions there. In effect, this will equate to higher prices. Given the needs of consumers, is there a way to ensure that prices in town centres are not significantly different from those out of town? Car ownership is below the European average, so inevitably people will be willing to drive further for better prices. Socially, it is important that we have vibrant towns but consumers do not agree with this. How can we ensure better prices, given restrictions relating to rates, rent and parking?

Mr. Kevin Jephson

The Government has put a great deal of money into urban renewal and city centre regeneration. We could rush to develop out of town locations and lose the vibrancy of towns. This would be anti-competitive because it would result in one big out of town centre that offers no choice. The discounters have been ingenious in developing successful chains around the country without having massive footprint stores. They have improved competition in this regard. To claim we need a huge out of town centre to improve competition is not true. There is competition currently, although we could always do with more. In terms of footprint, we could sacrifice much by being dictated to about a massive out of town centre; we could lose vibrant town centres and end up worse off.

Deputy Arthur Morgan

Would the witnesses put any social value on planning guidelines or are they purely commercial? It was suggested that large, out of town retail centres are car-dependent. Surely the answer is to provide a shuttle bus. The people we met last week made quite a robust presentation and suggested that the restrictions mentioned are crazy in modern Ireland and suited only to backwoods people. They said the approach should be market driven and that this would sort things out. They felt that those retailers who survive will survive and those who do not can be replaced.

Chairman

I knew Deputy Morgan would play devil's advocate.

Deputy Arthur Morgan

I am a fundamental believer in the market.

Mr. Kevin Jephson

Of course there is a social aspect to good planning — that is the point. The market needs sound regulation and guidance, as the financial events of the past six months have shown. There is a strong social aspect to planning and I thank the Deputy for the question.

Mr. David Fitzsimons

Regarding the building of transport infrastructure to the field that will now be the site of the new out-of-town shopping development, we have transport infrastructure on every high street in the country; therefore, why build another high street? Why not hold what we have and cherish it? We will see major difficulties in the retail sector in the next four years. Should we be here in four years time and if 60% of high street shops are still there, we will have done well.

Chairman

Does Mr. Fitzsimons believe retailers who transfer to out-of-town locations have a duty to contribute to the prevention of urban decay and urban sprawl and the cost of fossil fuel based transport?

Mr. David Fitzsimons

Out-of-town retail is a format that suits big box providers such as electrical retailers, for whom it is a fact of life, not a choice they have made. If those retailers were here, they would be heckling at that call because they are over-taxed. Some are looking at an 80% increase in rates in south Dublin, in Liffey Valley and such places. As mentioned, their wage costs have gone though the roof, while rent is incredibly high, in excess of €1 million per site in some places in Dublin. I went to a doctor in the Blackrock Clinic yesterday and in the course of our conversation I told him I would be appearing before a joint committee of the Oireachtas. He pays €140,000 per annum to sit in the Blackrock Clinic but I replied that if he had a small shop in the Frascati Centre, he would be paying more than that in rent and that he had it good. Retailers are paying through the nose. We have JLCs which ensure we have different rules in every sector and region. We have one rate of VAT for a croissant with chocolate versus a croissant without chocolate, a hot drink versus a cold drink and a sandwich eaten on the premises versus a takeaway sandwich. Mr. Brody Sweeney, one of the most innovative entrepreneurs in the country, is on his knees and cannot run his business owing to this over-regulation. I hope we do not see a new tax. It is unbelievably bad for retailers at present. It is unfortunate that we did not have the national closure that was due to happen last week; it will happen in the next couple of weeks.

Chairman

I thank the delegates for their contributions and engaging with the members of the joint committee. The committee will prepare a report that will be submitted to the relevant Departments. Obviously, each organisation will receive a copy as a token of our appreciation for the quality and excellence of the detailed written submissions received. We thank the delegates for their punctuality and look forward to the continuation of the discussion.

Sitting suspended at 10.55 a.m. and resumed at 11.25 a.m.